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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
________________________________________________________
FORM 10-Q
________________________________________________________
(Mark One)

☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2022
OR

☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to
Commission File Number 001-33251
________________________________________________________
UNIVERSAL INSURANCE HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
________________________________________________________

Delaware |  | 65-0231984
(State or other jurisdiction of incorporation or organization) |  | (I.R.S. Employer Identification No.)

1110 W. Commercial Blvd., Fort Lauderdale, Florida 33309
(Address of principal executive offices) (Zip Code)
(954) 958-1200
(Registrant’s telephone number, including area code)
________________________________________________________
Securities registered pursuant to Section 12(b) of the Act:

Title of each class | Trading Symbol(s) | Name of each exchange on which registered
Common Stock, $0.01 Par Value | UVE | New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

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Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer | ☐ | Accelerated filer | ☒
Non-accelerated filer | ☐ | Smaller reporting company | ☐
|  | Emerging growth company | ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) Yes ☐ No ☒
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 30,512,761 shares of common stock, par value $0.01 per share, outstanding on October 25, 2022.

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UNIVERSAL INSURANCE HOLDINGS, INC.
TABLE OF CONTENTS

PART I – FINANCIAL INFORMATION
|  | Page No.
Item 1. | Financial Statements: | 4
| Condensed Consolidated Balance Sheets as of September 30, 2022 and December 31, 2021 (unaudited) | 4
| Condensed Consolidated Statements of Income for the three and nine-month periods ended September 30, 2022 and 2021 (unaudited) | 5
| Condensed Consolidated Statements of Comprehensive Income for the three and nine-month periods ended September 30, 2022 and 2021 (unaudited) | 5
| Condensed Consolidated Statements of Stockholders’ Equity for the three and nine-month periods ended September 30, 2022 and 2021 (unaudited) | 6
| Condensed Consolidated Statements of Cash Flows for the nine-month periods ended September 30, 2022 and 2021 (unaudited) | 8
| Notes to Condensed Consolidated Financial Statements (unaudited) | 9
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 32
Item 3. | Quantitative and Qualitative Disclosures about Market Risk | 64
Item 4. | Controls and Procedures | 65
PART II – OTHER INFORMATION
Item 1. | Legal Proceedings | 65
Item 1A. | Risk Factors | 65
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 65
Item 6. | Exhibits | 67
Signatures | 68

2

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
Universal Insurance Holdings, Inc.
Fort Lauderdale, Florida
RESULTS OF REVIEW OF INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
We have reviewed the accompanying condensed consolidated balance sheet of Universal Insurance Holdings, Inc. and its wholly-owned subsidiaries (the “Company”) as of September 30, 2022 and the related condensed consolidated statements of income, comprehensive income, and stockholders’ equity for the three-month and nine-month periods ended September 30, 2022 and 2021 and the related condensed consolidated statement of cash flows for the nine-month periods ended September 30, 2022 and 2021. Based on our review, we are not aware of any material modifications that should be made to the accompanying interim financial statements for them to be in conformity with accounting principles generally accepted in the United States of America.
We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated balance sheet of Universal Insurance Holdings, Inc. as of December 31, 2021 and the related consolidated statements of income, comprehensive income, stockholders’ equity and cash flows for the year then ended (not presented herein) and we expressed an unqualified audit opinion on those consolidated financial statements in our report dated February 28, 2022. In our opinion, the information set forth in the accompanying consolidated balance sheet as of December 31, 2021, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.
BASIS FOR REVIEW RESULTS
These interim financial statements are the responsibility of the Company’s management. We conducted our review in accordance with the standards of the PCAOB. A review of interim financial statements consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the PCAOB, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.
We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
/s/ Plante & Moran, PLLC
East Lansing, Michigan
November 2, 2022
3

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PART I — FINANCIAL INFORMATION
Item 1. Financial Statements
UNIVERSAL INSURANCE HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)
(in thousands, except per share data)

| As of
| September 30, |  | December 31,
| 2022 |  | 2021
ASSETS |  |  |
Available-for-sale debt securities, at fair value, net of allowance for credit loss of $724 and $489 (amortized cost: $1,150,524 and $1,061,192) | $ | 996,783 |  |  | $ | 1,040,455 |
Equity securities, at fair value (cost: $102,630 and $51,151) | 82,387 |  |  | 47,334 |
Investment real estate, net | 5,752 |  |  | 5,891 |
Total invested assets | 1,084,922 |  |  | 1,093,680 |
Cash and cash equivalents | 307,435 |  |  | 250,508 |
Restricted cash and cash equivalents | 2,703 |  |  | 2,635 |
Prepaid reinsurance premiums | 452,230 |  |  | 240,993 |
Reinsurance recoverable | 935,810 |  |  | 185,589 |
Premiums receivable, net | 79,621 |  |  | 64,923 |
Property and equipment, net | 52,769 |  |  | 53,682 |
Deferred policy acquisition costs | 111,861 |  |  | 108,822 |
Income taxes recoverable | 32,823 |  |  | 16,947 |
Deferred income tax asset, net | 49,668 |  |  | 16,331 |
Other assets | 17,052 |  |  | 22,031 |
Total assets | $ | 3,126,894 |  |  | $ | 2,056,141 |
LIABILITIES AND STOCKHOLDERS’ EQUITY |  |  |
LIABILITIES: |  |  |
Unpaid losses and loss adjustment expenses | $ | 1,153,627 |  |  | $ | 346,216 |
Unearned premiums | 991,596 |  |  | 857,769 |
Advance premium | 78,269 |  |  | 53,694 |
Book overdraft | 3,102 |  |  | 26,759 |
Reinsurance payable, net | 458,865 |  |  | 188,662 |
Commission payable | 21,777 |  |  | 22,315 |
Other liabilities and accrued expenses | 56,053 |  |  | 27,348 |
Long-term debt, net | 102,968 |  |  | 103,676 |
Total liabilities | 2,866,257 |  |  | 1,626,439 |
Commitments and Contingencies (Note 12) |  |  |
STOCKHOLDERS’ EQUITY: |  |  |
Cumulative convertible preferred stock, $0.01 par value | — |  |  | — |
Authorized shares - 1,000 |  |  |
Issued shares - 10 and 10 |  |  |
Outstanding shares - 10 and 10 |  |  |
Minimum liquidation preference, $9.99 and $9.99 per share |  |  |
Common stock, $0.01 par value | 471 |  |  | 470 |
Authorized shares - 55,000 |  |  |
Issued shares - 47,116 and 47,018 |  |  |
Outstanding shares - 30,513 and 31,221 |  |  |
Treasury shares, at cost - 16,603 and 15,797 | (236,915) |  |  | (227,115) |
Additional paid-in capital | 111,397 |  |  | 108,202 |
Accumulated other comprehensive income (loss), net of taxes | (115,665) |  |  | (15,568) |
Retained earnings | 501,349 |  |  | 563,713 |
Total stockholders’ equity | 260,637 |  |  | 429,702 |
Total liabilities and stockholders’ equity | $ | 3,126,894 |  |  | $ | 2,056,141 |

The accompanying notes to condensed consolidated financial statements are an integral part of these statements.
4

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UNIVERSAL INSURANCE HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (unaudited)
(in thousands, except per share data)

| Three Months Ended September 30, |  | Nine Months Ended September 30,
| 2022 |  | 2021 |  | 2022 |  | 2021
REVENUES |  |  |  |  |  |  |
Direct premiums written | $ | 500,677 |  |  | $ | 432,984 |  |  | $ | 1,429,685 |  |  | $ | 1,271,925 |
Change in unearned premium | (48,227) |  |  | (22,363) |  |  | (133,827) |  |  | (93,124) |
Direct premium earned | 452,450 |  |  | 410,621 |  |  | 1,295,858 |  |  | 1,178,801 |
Ceded premium earned | (161,819) |  |  | (145,967) |  |  | (459,102) |  |  | (414,670) |
Premiums earned, net | 290,631 |  |  | 264,654 |  |  | 836,756 |  |  | 764,131 |
Net investment income | 6,074 |  |  | 2,797 |  |  | 15,337 |  |  | 8,641 |
Net realized gains (losses) on investments | 292 |  |  | 4,319 |  |  | (375) |  |  | 5,357 |
Net change in unrealized gains (losses) of equity securities | (4,150) |  |  | (3,759) |  |  | (16,430) |  |  | (3,024) |
Commission revenue | 12,592 |  |  | 11,418 |  |  | 35,157 |  |  | 30,404 |
Policy fees | 5,272 |  |  | 5,859 |  |  | 15,991 |  |  | 17,821 |
Other revenue | 2,099 |  |  | 1,966 |  |  | 5,862 |  |  | 5,862 |
Total revenues | 312,810 |  |  | 287,254 |  |  | 892,298 |  |  | 829,192 |
OPERATING COSTS AND EXPENSES |  |  |  |  |  |  |
Losses and loss adjustment expenses | 330,444 |  |  | 187,581 |  |  | 715,854 |  |  | 498,765 |
General and administrative expenses | 73,973 |  |  | 73,180 |  |  | 231,561 |  |  | 237,469 |
Total operating costs and expenses | 404,417 |  |  | 260,761 |  |  | 947,415 |  |  | 736,234 |
Interest and amortization of debt issuance costs | 1,630 |  |  | 29 |  |  | 4,969 |  |  | 84 |
INCOME (LOSS) BEFORE INCOME TAXES | (93,237) |  |  | 26,464 |  |  | (60,086) |  |  | 92,874 |
Income tax expense (benefit) | (20,962) |  |  | 6,281 |  |  | (12,718) |  |  | 24,342 |
NET INCOME (LOSS) | $ | (72,275) |  |  | $ | 20,183 |  |  | $ | (47,368) |  |  | $ | 68,532 |
Basic earnings (loss) per common share | $ | (2.36) |  |  | $ | 0.65 |  |  | $ | (1.54) |  |  | $ | 2.19 |
Weighted average common shares outstanding - Basic | 30,604 |  |  | 31,247 |  |  | 30,858 |  |  | 31,232 |
Diluted earnings (loss) per common share | $ | (2.36) |  |  | $ | 0.64 |  |  | $ | (1.54) |  |  | $ | 2.19 |
Weighted average common shares outstanding - Diluted | 30,604 |  |  | 31,337 |  |  | 30,858 |  |  | 31,302 |
Cash dividend declared per common share | $ | 0.16 |  |  | $ | 0.16 |  |  | $ | 0.48 |  |  | $ | 0.48 |

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (unaudited)

| Three Months Ended September 30, |  | Nine Months Ended September 30,
| 2022 |  | 2021 |  | 2022 |  | 2021
Net income (loss) | $ | (72,275) |  |  | $ | 20,183 |  |  | $ | (47,368) |  |  | $ | 68,532 |
Other comprehensive income (loss), net of taxes | (27,531) |  |  | (1,827) |  |  | (100,097) |  |  | (10,741) |
Comprehensive income (loss) | $ | (99,806) |  |  | $ | 18,356 |  |  | $ | (147,465) |  |  | $ | 57,791 |

The accompanying notes to condensed consolidated financial statements are an integral part of these statements.
5

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UNIVERSAL INSURANCE HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2022 AND 2021 (unaudited)
(in thousands, except per share data)

|  | Treasury Shares |  | Common Shares Issued |  | Preferred Shares Issued |  | Common Stock Amount |  | Preferred Stock Amount |  | Additional Paid-In Capital |  | Retained Earnings |  | Accumulated Other Comprehensive Income (Loss) |  | Treasury Shares, at Cost |  | Total Stockholders’ Equity
Balance, December 31, 2021 |  | (15,797) |  |  | 47,018 |  |  | 10 |  |  | $ | 470 |  |  | $ | — |  |  | $ | 108,202 |  |  | $ | 563,713 |  |  | $ | (15,568) |  |  | $ | (227,115) |  |  | $ | 429,702 |
Vesting of performance share units |  | (9) |  | (1) | 33 |  |  | — |  |  | 1 |  |  | — |  |  | (1) |  |  | — |  |  | — |  |  | (104) |  |  | (104) |
Vesting of restricted stock units |  | (6) |  | (1) | 27 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | (105) |  |  | (105) |
Retirement of treasury shares |  | 15 |  | (1) | (15) |  |  | — |  |  | — |  |  | — |  |  | (209) |  |  | — |  |  | — |  |  | 209 |  |  | — |
Purchases of treasury stock |  | (320) |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | (3,879) |  |  | (3,879) |
Share-based compensation |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 1,107 |  |  | — |  |  | — |  |  | — |  |  | 1,107 |
Net income (loss) |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 17,537 |  |  | — |  |  | — |  |  | 17,537 |
Other comprehensive loss, net of taxes |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | (42,910) |  |  | — |  |  | (42,910) |
Declaration of dividends ($0.16 per common share and $0.25 per preferred share) |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | (5,007) |  |  | — |  |  | — |  |  | (5,007) |
Balance, March 31, 2022 |  | (16,117) |  |  | 47,063 |  |  | 10 |  |  | 471 |  |  | — |  |  | 109,099 |  |  | 576,243 |  |  | (58,478) |  |  | (230,994) |  |  | 396,341 |
Grant of restricted stock awards |  | — |  |  | 53 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Purchases of treasury stock |  | (283) |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | (3,502) |  |  | (3,502) |
Share-based compensation |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 990 |  |  | — |  |  | — |  |  | — |  |  | 990 |
Net income (loss) |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 7,370 |  |  | — |  |  | — |  |  | 7,370 |
Other comprehensive loss, net of taxes |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | (29,656) |  |  | — |  |  | (29,656) |
Declaration of dividends ($0.16 per common share and $0.25 per preferred share) |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | (4,992) |  |  | — |  |  | — |  |  | (4,992) |
Balance, June 30, 2022 |  | (16,400) |  |  | 47,116 |  |  | 10 |  |  | 471 |  |  | — |  |  | 110,089 |  |  | 578,621 |  |  | (88,134) |  |  | (234,496) |  |  | 366,551 |
Purchases of treasury stock |  | (203) |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | (2,419) |  |  | (2,419) |
Share-based compensation |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 1,308 |  |  | — |  |  | — |  |  | — |  |  | 1,308 |
Net income (loss) |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | (72,275) |  |  | — |  |  | — |  |  | (72,275) |
Other comprehensive loss, net of taxes |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | (27,531) |  |  | — |  |  | (27,531) |
Declaration of dividends ($0.16 per common share and $0.25 per preferred share) |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | (4,997) |  |  | — |  |  | — |  |  | (4,997) |
Balance, September 30, 2022 |  | (16,603) |  |  | 47,116 |  |  | 10 |  |  | $ | 471 |  |  | $ | — |  |  | $ | 111,397 |  |  | $ | 501,349 |  |  | $ | (115,665) |  |  | $ | (236,915) |  |  | $ | 260,637 |

(1) | All shares acquired represent shares tendered to cover the strike price for options and tax withholdings on the intrinsic value of options exercised, restricted stock vested, performance share units vested, or restricted stock units vested. These shares have been cancelled by the Company.

The accompanying notes to condensed consolidated financial statements are an integral part of these statements.
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UNIVERSAL INSURANCE HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (continued)
(in thousands, except per share data)

|  | Treasury Shares |  | Common Shares Issued |  | Preferred Shares Issued |  | Common Stock Amount |  | Preferred Stock Amount |  | Additional Paid-In Capital |  | Retained Earnings |  | Accumulated Other Comprehensive Income (Loss) |  | Treasury Shares, at Cost |  | Total Stockholders’ Equity
Balance, December 31, 2020 |  | (15,680) |  |  | 46,817 |  |  | 10 |  |  | $ | 468 |  |  | $ | — |  |  | $ | 103,445 |  |  | $ | 567,512 |  |  | $ | 3,343 |  |  | $ | (225,506) |  |  | $ | 449,262 |
Vesting of performance share units |  | (16) |  | (1) | 62 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | (241) |  |  | (241) |
Vesting of restricted stock units |  | (17) |  | (1) | 65 |  |  | — |  |  | 1 |  |  | — |  |  | (1) |  |  | — |  |  | — |  |  | (254) |  |  | (254) |
Retirement of treasury shares |  | 33 |  | (1) | (33) |  |  | — |  |  | — |  |  | — |  |  | (495) |  |  | — |  |  | — |  |  | 495 |  |  | — |
Purchases of treasury stock |  | (15) |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | (245) |  |  | (245) |
Share-based compensation |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 1,675 |  |  | — |  |  | — |  |  | — |  |  | 1,675 |
Net income |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 26,408 |  |  | — |  |  | — |  |  | 26,408 |
Other comprehensive loss, net of taxes |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | (16,910) |  |  | — |  |  | (16,910) |
Declaration of dividends ($0.16 per common share and $0.25 per preferred share) |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | (5,030) |  |  | — |  |  | — |  |  | (5,030) |
Balance, March 31, 2021 |  | (15,695) |  |  | 46,911 |  |  | 10 |  |  | 469 |  |  | — |  |  | 104,624 |  |  | 588,890 |  |  | (13,567) |  |  | (225,751) |  |  | 454,665 |
Vesting of restricted stock units |  | (20) |  | (1) | 73 |  |  | — |  |  | 1 |  |  | — |  |  | (1) |  |  | — |  |  | — |  |  | (288) |  |  | (288) |
Retirement of treasury shares |  | 20 |  | (1) | (20) |  |  | — |  |  | — |  |  | — |  |  | (288) |  |  | — |  |  | — |  |  | 288 |  |  | — |
Share-based compensation |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 1,569 |  |  | — |  |  | — |  |  | — |  |  | 1,569 |
Net income |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 21,941 |  |  | — |  |  | — |  |  | 21,941 |
Other comprehensive income, net of taxes |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 7,996 |  |  | — |  |  | 7,996 |
Declaration of dividends ($0.16 per common share and $0.25 per preferred share) |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | (5,041) |  |  | — |  |  | — |  |  | (5,041) |
Balance, June 30, 2021 |  | (15,695) |  |  | 46,964 |  |  | 10 |  |  | 470 |  |  | — |  |  | 105,904 |  |  | 605,790 |  |  | (5,571) |  |  | (225,751) |  |  | 480,842 |
Purchases of treasury stock |  | (102) |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | (1,364) |  |  | (1,364) |
Share-based compensation |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 1,478 |  |  | — |  |  | — |  |  | — |  |  | 1,478 |
Net income |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 20,183 |  |  | — |  |  | — |  |  | 20,183 |
Other comprehensive loss, net of taxes |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | (1,827) |  |  | — |  |  | (1,827) |
Declaration of dividends ($0.16 per common share and $0.25 per preferred share) |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | (5,037) |  |  | — |  |  | — |  |  | (5,037) |
Balance, September 30, 2021 |  | (15,797) |  |  | 46,964 |  |  | 10 |  |  | $ | 470 |  |  | $ | — |  |  | $ | 107,382 |  |  | $ | 620,936 |  |  | $ | (7,398) |  |  | $ | (227,115) |  |  | $ | 494,275 |

(1) | All shares acquired represent shares tendered to cover the strike price for options and tax withholdings on the intrinsic value of options exercised, restricted stock vested, performance share units vested, or restricted stock units vested. These shares have been cancelled by the Company.

The accompanying notes to condensed consolidated financial statements are an integral part of these statements.
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UNIVERSAL INSURANCE HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
(in thousands)

| Nine Months Ended
| September 30,
| 2022 |  | 2021
Cash flows from operating activities: |  |  |
Net cash provided by operating activities | $ | 223,157 |  |  | $ | 273,980 |
Cash flows from investing activities: |  |  |
Proceeds from sale of property and equipment | 65 |  |  | 32 |
Purchases of property and equipment | (4,388) |  |  | (4,880) |
Purchases of equity securities | (67,733) |  |  | (46,532) |
Purchases of available-for-sale debt securities | (178,788) |  |  | (354,907) |
Purchases of investment real estate, net | — |  |  | (7) |
Proceeds from sales of equity securities | 26,667 |  |  | 53,651 |
Proceeds from sales of available-for-sale debt securities | 24,855 |  |  | 76,516 |
Proceeds from sales of investment real estate | — |  |  | 2,591 |
Proceeds from sale of assets held for sale | — |  |  | 8,856 |
Maturities of available-for-sale debt securities | 59,291 |  |  | 70,095 |
Net cash provided by (used in) investing activities | (140,031) |  |  | (194,585) |
Cash flows from financing activities: |  |  |
Debt issuance costs paid | (131) |  |  | — |
Preferred stock dividend | (8) |  |  | (8) |
Common stock dividend | (14,880) |  |  | (15,104) |
Purchase of treasury stock | (9,800) |  |  | (1,609) |
Payments related to tax withholding for share-based compensation | (209) |  |  | (784) |
Repayment of debt | (1,103) |  |  | (1,103) |
Net cash provided by (used in) financing activities | (26,131) |  |  | (18,608) |
Cash and cash equivalents and restricted cash and cash equivalents: |  |  |
Net increase (decrease) during the period | 56,995 |  |  | 60,787 |
Balance, beginning of period | 253,143 |  |  | 179,871 |
Balance, end of period | $ | 310,138 |  |  | $ | 240,658 |

The following table summarizes our cash and cash equivalents and restricted cash and cash equivalents within the Condensed Consolidated Balance Sheets (in thousands):

| September 30, |  | December 31,
| 2022 |  | 2021
Cash and cash equivalents | $ | 307,435 |  |  | $ | 250,508 |
Restricted cash and cash equivalents (1) | 2,703 |  |  | 2,635 |
Total cash and cash equivalents and restricted cash and cash equivalents | $ | 310,138 |  |  | $ | 253,143 |

(1)See “—Note 5 (Insurance Operations)” for a discussion of the nature of the restrictions for restricted cash and cash equivalents and “—Note 14 (Variable Interest Entities)” for a discussion of restricted cash held in a trust account.
The accompanying notes to condensed consolidated financial statements are an integral part of these statements.
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UNIVERSAL INSURANCE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. Nature of Operations and Basis of Presentation
Nature of Operations
Universal Insurance Holdings, Inc. (“UVE”, and together with its wholly-owned subsidiaries, “the Company”) is a Delaware corporation incorporated in 1990. The Company is a vertically integrated insurance holding company performing all aspects of insurance underwriting, distribution and claims. Through its wholly-owned insurance company subsidiaries, Universal Property & Casualty Insurance Company (“UPCIC”) and American Platinum Property and Casualty Insurance Company (“APPCIC”, and together with UPCIC, the “Insurance Entities”), the Company is principally engaged in the property and casualty insurance business offered primarily through its network of independent agents. Risk from catastrophic losses is managed through the use of reinsurance agreements. The Company’s primary product is residential homeowners’ insurance offered in 19 states as of September 30, 2022, including Florida, which comprises the majority of the Company’s policies in force. See “—Note 5 (Insurance Operations)” for more information regarding the Company’s insurance operations.
The Company generates revenues primarily from the collection of premiums and investment returns on funds invested on cash flows in excess of those retained and used for claims-paying obligations and insurance operations. Other significant sources of revenue include brokerage commissions collected from reinsurers on certain reinsurance programs placed on behalf of the Insurance Entities, policy fees collected from policyholders by the Company’s wholly-owned managing general agent subsidiary and payment plan fees charged to policyholders who choose to pay their premiums in installments. The Company’s wholly-owned adjusting company receives claims-handling fees from the Insurance Entities. The Insurance Entities are reimbursed for these fees on claims that are subject to recovery under the Insurance Entities’ respective reinsurance programs. These fees, after expenses, are recorded in the Condensed Consolidated Financial Statements as an adjustment to losses and loss adjustment expense (“LAE”).
Basis of Presentation
The Company has prepared the accompanying unaudited Condensed Consolidated Financial Statements (“Financial Statements”) in accordance with the rules and regulations of the United States Securities and Exchange Commission (“SEC”) for interim financial information. Accordingly, the Financial Statements do not include all of the information and footnotes required by United States Generally Accepted Accounting Principles (“GAAP”) for annual financial statements. Therefore, the Financial Statements should be read in conjunction with the audited Consolidated Financial Statements contained in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2021, filed with the SEC on February 28, 2022. The Condensed Consolidated Balance Sheet at December 31, 2021 was derived from audited financial statements, but does not include all disclosures required by GAAP. In the opinion of management, all adjustments (consisting of normal recurring adjustments) necessary for a fair presentation have been included in the Financial Statements. The results for interim periods do not necessarily indicate the results that may be expected for any other interim period or for the full year.
To conform to the current period presentation, certain amounts in the prior periods’ condensed consolidated financial statements and notes have been reclassified. Such reclassifications were of an immaterial amount and had no effect on net income or stockholders’ equity.
The Financial Statements include the accounts of the Company and its wholly-owned subsidiaries, as well as variable interest entities (“VIE”) in which the Company is determined to be the primary beneficiary. All material intercompany balances and transactions have been eliminated in consolidation.
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. The Company’s primary use of estimates is in the recognition of liabilities for unpaid losses, loss adjustment expenses, subrogation recoveries and reinsurance recoveries. Actual results could differ from those estimates.
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2. Significant Accounting Policies
The Company reported Significant Accounting Policies in its Annual Report on Form 10-K for the year ended December 31, 2021. There are no new or revised disclosures or disclosures required on a quarterly basis.
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3. Investments
Available-for-Sale Securities
The following table provides the amortized cost and fair value of available-for-sale debt securities as of the dates presented (in thousands):

| September 30, 2022
| Amortized Cost |  | Allowance for Expected Credit Losses |  | Gross Unrealized Gains |  | Gross Unrealized Losses |  | Fair Value
Debt Securities: |  |  |  |  |  |  |  |  |
U.S. government obligations and agencies | $ | 12,602 |  |  | $ | — |  |  | $ | — |  |  | $ | (1,004) |  |  | $ | 11,598 |
Corporate bonds | 781,131 |  |  | (589) |  |  | 42 |  |  | (105,221) |  |  | 675,363 |
Mortgage-backed and asset-backed securities | 332,444 |  |  | — |  |  | 63 |  |  | (42,774) |  |  | 289,733 |
Municipal bonds | 14,924 |  |  | — |  |  | — |  |  | (2,486) |  |  | 12,438 |
Redeemable preferred stock | 9,423 |  |  | (135) |  |  | — |  |  | (1,637) |  |  | 7,651 |
Total | $ | 1,150,524 |  |  | $ | (724) |  |  | $ | 105 |  |  | $ | (153,122) |  |  | $ | 996,783 |

| December 31, 2021
| Amortized Cost | Allowance for Expected Credit Losses |  | Gross Unrealized Gains |  | Gross Unrealized Losses |  | Fair Value
Debt Securities: |  |  |  |  |  |  |  |
U.S. government obligations and agencies | $ | 27,076 |  | $ | — |  |  | $ | 64 |  |  | $ | (334) |  |  | $ | 26,806 |
Corporate bonds | 687,058 |  | (371) |  |  | 843 |  |  | (13,725) |  |  | 673,805 |
Mortgage-backed and asset-backed securities | 322,844 |  | — |  |  | 194 |  |  | (6,920) |  |  | 316,118 |
Municipal bonds | 14,925 |  | (1) |  |  | — |  |  | (350) |  |  | 14,574 |
Redeemable preferred stock | 9,289 |  | (117) |  |  | 28 |  |  | (48) |  |  | 9,152 |
Total | $ | 1,061,192 |  | $ | (489) |  |  | $ | 1,129 |  |  | $ | (21,377) |  |  | $ | 1,040,455 |

The following table provides the credit quality of available-for-sale debt securities with contractual maturities as of the dates presented (dollars in thousands):

|  | September 30, 2022 |  | December 31, 2021
Average Credit Ratings |  | Fair Value |  | % of Total Fair Value |  | Fair Value |  | % of Total Fair Value
AAA |  | $ | 297,030 |  |  | 29.8 | % |  | $ | 321,975 |  |  | 31.0 | %
AA |  | 150,936 |  |  | 15.2 | % |  | 139,186 |  |  | 13.4 | %
A |  | 320,427 |  |  | 32.1 | % |  | 339,500 |  |  | 32.6 | %
BBB |  | 225,154 |  |  | 22.6 | % |  | 234,358 |  |  | 22.5 | %
No Rating Available |  | 3,236 |  |  | 0.3 | % |  | 5,436 |  |  | 0.5 | %
Total |  | $ | 996,783 |  |  | 100.0 | % |  | $ | 1,040,455 |  |  | 100.0 | %

The table above includes credit quality ratings by Standard and Poor’s Rating Services, Inc. (“S&P”), Moody’s Investors Service, Inc. and Fitch Ratings, Inc. The Company has presented the highest rating of the three rating agencies for each investment position.
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The following table summarizes the amortized cost and fair value of mortgage-backed and asset-backed securities as of the dates presented (in thousands):

| September 30, 2022 |  | December 31, 2021
| Amortized Cost |  | Fair Value |  | Amortized Cost |  | Fair Value
Mortgage-backed securities: |  |  |  |  |  |  |
Agency | $ | 159,177 |  |  | $ | 133,795 |  |  | $ | 147,992 |  |  | $ | 143,819 |
Non-agency | 61,880 |  |  | 51,242 |  |  | 59,906 |  |  | 58,263 |
Asset-backed securities: |  |  |  |  |  |  |
Auto loan receivables | 66,392 |  |  | 63,258 |  |  | 67,352 |  |  | 66,877 |
Credit card receivables | 657 |  |  | 611 |  |  | 4,741 |  |  | 4,719 |
Other receivables | 44,338 |  |  | 40,827 |  |  | 42,853 |  |  | 42,440 |
Total | $ | 332,444 |  |  | $ | 289,733 |  |  | $ | 322,844 |  |  | $ | 316,118 |

The following tables summarize available-for-sale debt securities, aggregated by major security type and length of time that individual securities have been in a continuous unrealized loss position, for which no allowance for expected credit losses has been recorded as of the dates presented (in thousands):

| September 30, 2022
| Less Than 12 Months |  | 12 Months or Longer
| Number of Issues |  | Fair Value |  | Unrealized Losses |  | Number of Issues |  | Fair Value |  | Unrealized Losses
Debt Securities: |  |  |  |  |  |  |  |  |  |  |
U.S. government obligations and agencies | 2 |  |  | $ | 2,720 |  |  | $ | (113) |  |  | 5 |  |  | $ | 8,878 |  |  | $ | (891) |
Corporate bonds | 123 |  |  | 136,528 |  |  | (17,249) |  |  | 173 |  |  | 202,294 |  |  | (37,753) |
Mortgage-backed and asset-backed securities | 116 |  |  | 121,753 |  |  | (10,259) |  |  | 96 |  |  | 157,818 |  |  | (32,515) |
Municipal bonds | 3 |  |  | 2,299 |  |  | (390) |  |  | 7 |  |  | 10,139 |  |  | (2,096) |
Redeemable preferred stock | 7 |  |  | 2,167 |  |  | (427) |  |  | — |  |  | — |  |  | — |
Total | 251 |  |  | $ | 265,467 |  |  | $ | (28,438) |  |  | 281 |  |  | $ | 379,129 |  |  | $ | (73,255) |

| December 31, 2021
| Less Than 12 Months |  | 12 Months or Longer
| Number of Issues |  | Fair Value |  | Unrealized Losses |  | Number of Issues |  | Fair Value |  | Unrealized Losses
Debt Securities: |  |  |  |  |  |  |  |  |  |  |
U.S. government obligations and agencies | 4 |  |  | $ | 18,913 |  |  | $ | (111) |  |  | 4 |  |  | $ | 5,016 |  |  | $ | (223) |
Corporate bonds | 249 |  |  | 378,595 |  |  | (7,468) |  |  | 18 |  |  | 17,356 |  |  | (679) |
Mortgage-backed and asset-backed securities | 145 |  |  | 274,883 |  |  | (5,969) |  |  | 11 |  |  | 23,273 |  |  | (951) |
Municipal bonds | 5 |  |  | 9,811 |  |  | (269) |  |  | — |  |  | — |  |  | — |
Redeemable preferred stock | 1 |  |  | 200 |  |  | (1) |  |  | — |  |  | — |  |  | — |
Total | 404 |  |  | $ | 682,402 |  |  | $ | (13,818) |  |  | 33 |  |  | $ | 45,645 |  |  | $ | (1,853) |

Unrealized losses on available-for-sale debt securities in the above table as of September 30, 2022 have not been recognized into income as credit losses because the issuers are of high credit quality (investment grade securities), management does not intend to sell and it is likely management will not be required to sell the securities prior to their anticipated recovery, and the decline in fair value is largely due to changes in interest rates and other market conditions. There were no material factors impacting any one category or specific security requiring an accrual for credit loss. The issuers continue to make principal and interest payments on the bonds. The fair value is expected to recover as the bonds approach maturity.
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The following table presents a reconciliation of the beginning and ending balances for expected credit losses on available-for-sale debt securities (in thousands):

|  | Corporate Bonds |  |  |  | Municipal Bonds |  | Redeemable Preferred Stock |  | Total
Balance, December 31, 2020 |  | $ | 148 |  |  |  |  | $ | — |  |  | $ | 38 |  |  | $ | 186 |
Provision for (or reversal of) credit loss expense |  | 223 |  |  |  |  | 1 |  |  | 79 |  |  | 303 |
Balance, December 31, 2021 |  | 371 |  |  |  |  | 1 |  |  | 117 |  |  | 489 |
Provision for (or reversal of) credit loss expense |  | 218 |  |  |  |  | (1) |  |  | 18 |  |  | 235 |
Balance, September 30, 2022 |  | $ | 589 |  |  |  |  | $ | — |  |  | $ | 135 |  |  | $ | 724 |

For available-for-sale debt securities in an unrealized loss position, the Company first assesses whether it intends to sell, or is more likely than not that it will be required to sell the security before recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the security’s amortized cost basis is written down to fair value through income. For available-for-sale debt securities that do not meet the aforementioned criteria, the Company evaluates whether the decline in fair value has resulted from credit losses or other factors. In making this assessment, management considers the extent to which fair value is less than amortized cost, any changes to the rating of the security by rating agencies, market sentiment and trends and adverse conditions specifically related to the security, among other quantitative and qualitative factors utilized for establishing an estimate for credit losses. If the assessment indicates that a credit loss exists, the present values of cash flows expected to be collected from the security are compared to the amortized cost basis of the security. If the present value of cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an allowance for credit losses is recorded for the credit loss, limited by the amount that fair value is less than the amortized cost basis. Any impairment that has not been recorded through an allowance for credit losses is recognized in other comprehensive income.
Changes in the allowance for credit losses are recorded as a provision for (or reversal of) credit loss expense and are reported in general and administrative expenses in the Condensed Consolidated Statements of Income. Losses are charged against the allowance when management believes an available-for-sale debt security is confirmed as uncollected or when either of the criteria regarding intent or requirement to sell is met.
The following table presents the amortized cost and fair value of investments with maturities as of the date presented (in thousands):

| September 30, 2022
| Amortized Cost |  | Fair Value
Due in one year or less | $ | 67,525 |  |  | $ | 65,865 |
Due after one year through five years | 557,115 |  |  | 499,715 |
Due after five years through ten years | 496,292 |  |  | 408,509 |
Due after ten years | 27,048 |  |  | 20,640 |
Perpetual maturity securities | 2,544 |  |  | 2,054 |
Total | $ | 1,150,524 |  |  | $ | 996,783 |

All securities, except those with perpetual maturities, were categorized in the table above utilizing years to effective maturity. Effective maturity takes into consideration all forms of potential prepayment, such as call features or prepayment schedules, that shorten the lifespan of contractual maturity dates.
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The following table provides certain information related to available-for-sale debt securities, equity securities and investment in real estate during the periods presented (in thousands):

| Three Months Ended September 30, |  | Nine Months Ended September 30,
| 2022 |  | 2021 |  | 2022 |  | 2021
Proceeds from sales and maturities (fair value): |  |  |  |  |  |  |
Available-for-sale debt securities | $ | 30,929 |  |  | $ | 32,320 |  |  | $ | 84,146 |  |  | $ | 146,611 |
Equity securities | $ | 8,975 |  |  | $ | 48,486 |  |  | $ | 26,667 |  |  | $ | 53,651 |
Gross realized gains on sale of securities: |  |  |  |  |  |  |
Available-for-sale debt securities | $ | — |  |  | $ | 882 |  |  | $ | 242 |  |  | $ | 1,899 |
Equity securities | $ | 571 |  |  | $ | 1,315 |  |  | $ | 1,119 |  |  | $ | 2,399 |
Gross realized losses on sale of securities: |  |  |  |  |  |  |
Available-for-sale debt securities | $ | (210) |  |  | $ | (192) |  |  | $ | (1,665) |  |  | $ | (1,656) |
Equity securities | $ | (69) |  |  | $ | — |  |  | $ | (71) |  |  | $ | — |
Realized gains on sales of investment real estate (1) | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | 401 |

(1) |  |  | During the first quarter of 2021, the Company completed the sale of a non-income producing investment real estate property. The Company received net cash proceeds of approximately $2.6 million and recognized a pre-tax gain of approximately $0.4 million that is included in net realized gains (losses) on investments in the Condensed Consolidated Statements of Income for the nine months ended September 30, 2021.

The following table presents the components of net investment income, comprised primarily of interest and dividends, for the periods presented (in thousands):

| Three Months Ended September 30, |  | Nine Months Ended September 30,
| 2022 |  | 2021 |  | 2022 |  | 2021
Available-for-sale debt securities | $ | 4,847 |  |  | $ | 2,799 |  |  | $ | 13,791 |  |  | $ | 8,393 |
Equity securities | 740 |  |  | 544 |  |  | 1,965 |  |  | 1,787 |
Cash and cash equivalents (1) | 1,069 |  |  | 2 |  |  | 1,324 |  |  | 28 |
Other (2) | 122 |  |  | 274 |  |  | 371 |  |  | 809 |
Total investment income | 6,778 |  |  | 3,619 |  |  | 17,451 |  |  | 11,017 |
Less: Investment expenses (3) | (704) |  |  | (822) |  |  | (2,114) |  |  | (2,376) |
Net investment income | $ | 6,074 |  |  | $ | 2,797 |  |  | $ | 15,337 |  |  | $ | 8,641 |

(1) |  |  | Includes interest earned on restricted cash and cash equivalents.
(2) |  |  | Includes investment income earned on real estate investments.
(3) |  |  | Includes custodial fees, investment accounting and advisory fees, and expenses associated with real estate investments.

Equity Securities
The following table provides the unrealized gains and losses recognized for the periods presented on equity securities still held at the end of the reported period (in thousands):

| Three Months Ended September 30, |  | Nine Months Ended September 30,
| 2022 |  | 2021 |  | 2022 |  | 2021
Unrealized gains (losses) recognized during the reported period on equity securities still held at the end of the reported period | $ | (4,150) |  |  | $ | (3,418) |  |  | $ | (16,387) |  |  | $ | (2,391) |

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Investment Real Estate
Investment real estate consisted of the following as of the dates presented (in thousands):

| September 30, |  | December 31,
| 2022 |  | 2021
Income Producing: |  |  |
Investment real estate | $ | 7,091 |  |  | $ | 7,091 |
Less: Accumulated depreciation | (1,339) |  |  | (1,200) |
Investment real estate, net | $ | 5,752 |  |  | $ | 5,891 |

The following table provides the depreciation expense related to investment real estate for the periods presented (in thousands):

| Three Months Ended September 30, |  | Nine Months Ended September 30,
| 2022 |  | 2021 |  | 2022 |  | 2021
Depreciation expense on investment real estate | $ | 46 |  |  | $ | 47 |  |  | $ | 139 |  |  | $ | 139 |

Assets Held for Sale as of September 30, 2021
During the second quarter of 2021, the Company committed to a plan to actively market the sale of a real estate property previously included in property and equipment, net. The real estate property is located in Pompano Beach, Florida. Proceeds from the sale was expected to exceed the property’s carrying value of $0.3 million and, accordingly, no impairment loss was recognized on the classification of this real estate property as held for sale.
During the first quarter of 2021, the Company committed to a plan to actively market an income-producing investment real estate property and classified the investment property to assets held for sale. On September 30, 2021, the Company completed the sale and received net cash proceeds of approximately $8.9 million and recognized a pre-tax gain of approximately $2.3 million that is included in net realized gains (losses) on investments in the Condensed Consolidated Statements of Income for the three and nine months ended September 30, 2021.
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4. Reinsurance
The Company seeks to reduce its risk of loss by reinsuring certain levels of risk in various areas of exposure with other insurance enterprises or reinsurers, generally as of the beginning of the hurricane season on June 1 st of each year. The Company’s current reinsurance programs consist principally of catastrophe excess of loss reinsurance, subject to the terms and conditions of the applicable agreements. Notwithstanding the purchase of such reinsurance, the Company is responsible for certain retained loss amounts before reinsurance attaches and for insured losses related to catastrophes and other events that exceed coverage provided by the reinsurance programs. The Company remains responsible for the settlement of insured losses irrespective of whether any of the reinsurers fail to make payments otherwise due.
To reduce credit risk for amounts due from reinsurers, the Insurance Entities seek to do business with financially sound reinsurance companies and regularly evaluate the financial strength of all reinsurers used.
The following table presents ratings from rating agencies and the unsecured amounts due from the reinsurers whose aggregate balance exceeded 3% of the Company’s stockholders’ equity as of the dates presented (in thousands):

|  | Ratings as of September 30, 2022 |  | Due from as of
Reinsurer |  | AM Best Company |  | Standard and Poor’s Rating Services, Inc. |  | Moody’s Investors Service, Inc. |  | September 30, 2022 |  | December 31, 2021
Allianz Risk Transfer |  | A+ |  | AA- |  | Aa3 |  | $ | 371,290 |  |  | $ | — |
Various Lloyd’s of London Syndicates (1) |  | A |  | A+ |  | n/a |  | 132,967 |  |  | — |
Chubb Tempest Reinsurance, Ltd. |  | A++ |  | AA |  | Aa3 |  | 62,592 |  |  | — |
Florida Hurricane Catastrophe Fund (2) |  | n/a |  | n/a |  | n/a |  | 61,024 |  |  | 136,298 |
DaVinci Reinsurance Ltd. |  | A |  | AA- |  | A3 |  | 58,290 |  |  | — |
Renaissance Reinsurance Ltd. |  | A+ |  | A+ |  | A1 |  | 49,773 |  |  | 20,051 |
Markel Bermuda Ltd. |  | A |  | A |  | A2 |  | 46,770 |  |  | — |
Munich Reinsurance America Inc. |  | A+ |  | AA- |  | Aa3 |  | 19,122 |  |  | — |
Everest Reinsurance Co |  | A+ |  | A+ |  | A1 |  | 11,994 |  |  | — |
Lumen Re Ltd. (3) |  | A |  | n/a |  | n/a |  | 9,283 |  |  | — |
Allianz Risk Transfer (Bermuda) Ltd. |  | — |  | — |  | — |  | — |  |  | 44,618 |
Total (4) |  |  |  |  |  |  |  | $ | 823,105 |  |  | $ | 200,967 |

(1)No rating available for Moody’s Investors Service, Inc.
(2)No rating is available because the fund is not rated.
(3)No rating available for Standard and Poor’s Rating Service, Inc. and Moody’s Investors Service, Inc.
(4)Amounts represent prepaid reinsurance premiums and net recoverables for paid and unpaid losses, including incurred but not reported reserves, and loss adjustment expenses.
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The Company’s reinsurance arrangements had the following effect on certain items in the Condensed Consolidated Statements of Income for the periods presented (in thousands):

| Three Months Ended September 30,
| 2022 |  | 2021
| Premiums Written |  | Premiums Earned |  | Losses and Loss Adjustment Expenses |  | Premiums Written |  | Premiums Earned |  | Losses and Loss Adjustment Expenses
Direct | $ | 500,677 |  |  | $ | 452,450 |  |  | $ | 1,269,344 |  |  | $ | 432,984 |  |  | $ | 410,621 |  |  | $ | 264,068 |
Ceded | (23,956) |  |  | (161,819) |  |  | (938,900) |  |  | (124) |  |  | (145,967) |  |  | (76,487) |
| $ | 476,721 |  |  | $ | 290,631 |  |  | $ | 330,444 |  |  | $ | 432,860 |  |  | $ | 264,654 |  |  | $ | 187,581 |

| Nine Months Ended September 30,
| 2022 |  | 2021
| Premiums Written |  | Premiums Earned |  | Losses and Loss Adjustment Expenses |  | Premiums Written |  | Premiums Earned |  | Losses and Loss Adjustment Expenses
Direct | $ | 1,429,685 |  |  | $ | 1,295,858 |  |  | $ | 1,724,729 |  |  | $ | 1,271,925 |  |  | $ | 1,178,801 |  |  | $ | 777,668 |
Ceded | (670,339) |  |  | (459,102) |  |  | (1,008,875) |  |  | (585,413) |  |  | (414,670) |  |  | (278,903) |
Net | $ | 759,346 |  |  | $ | 836,756 |  |  | $ | 715,854 |  |  | $ | 686,512 |  |  | $ | 764,131 |  |  | $ | 498,765 |

The following prepaid reinsurance premiums and reinsurance recoverable are reflected in the Condensed Consolidated Balance Sheets as of the dates presented (in thousands):

| September 30, |  | December 31,
| 2022 |  | 2021
Prepaid reinsurance premiums | $ | 452,230 |  |  | $ | 240,993 |
Reinsurance recoverable on paid losses and LAE | $ | 6,042 |  |  | $ | 69,729 |
Reinsurance recoverable on unpaid losses and LAE | 929,768 |  |  | 115,860 |
Reinsurance recoverable | $ | 935,810 |  |  | $ | 185,589 |

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5. Insurance Operations
Deferred Policy Acquisition Costs
The Company defers certain costs in connection with written premium, called Deferred Policy Acquisition Costs (“DPAC”). DPAC is amortized over the effective period of the related insurance policies.
The following table presents the beginning and ending balances and the changes in DPAC for the periods presented (in thousands):

| Three Months Ended September 30, |  | Nine Months Ended September 30,
| 2022 |  | 2021 |  | 2022 |  | 2021
DPAC, beginning of period | $ | 110,983 |  |  | $ | 115,971 |  |  | $ | 108,822 |  |  | $ | 110,614 |
Capitalized Costs | 55,552 |  |  | 55,054 |  |  | 165,983 |  |  | 170,996 |
Amortization of DPAC | (54,674) |  |  | (57,046) |  |  | (162,944) |  |  | (167,631) |
DPAC, end of period | $ | 111,861 |  |  | $ | 113,979 |  |  | $ | 111,861 |  |  | $ | 113,979 |

Regulatory Requirements and Restrictions
The Insurance Entities are subject to regulations and standards of the Florida Office of Insurance Regulation (“FLOIR”). The Insurance Entities are also subject to regulations and standards of regulatory authorities in other states where they are licensed, although as Florida-domiciled insurers, their principal regulatory authority is the FLOIR. These standards and regulations include a requirement that the Insurance Entities maintain specified levels of statutory capital and restrict the timing and amount of dividends and other distributions that may be paid by the Insurance Entities to the parent company. Except in the case of extraordinary dividends, these standards generally permit dividends to be paid from statutory unassigned funds of the regulated subsidiary and are limited based on the regulated subsidiary’s level of statutory net income and statutory capital and surplus. The maximum dividend that may be paid by the Insurance Entities to their immediate parent company, Protection Solutions, Inc. (“PSI”, formerly known as Universal Insurance Holding Company of Florida), without prior regulatory approval is limited by the provisions of the Florida Insurance Code. These dividends are referred to as “ordinary dividends.” However, if the dividend, together with other dividends paid within the preceding twelve months, exceeds this statutory limit or is paid from sources other than earned surplus, the entire dividend is generally considered an “extraordinary dividend” and must receive prior regulatory approval.
In accordance with Florida Insurance Code, and based on the calculations performed by the Company as of December 31, 2021, UPCIC and APPCIC currently are not able to pay any ordinary dividends during 2022. For the nine months ended September 30, 2022 and 2021, no dividends were paid from the Insurance Entities to PSI.
The Florida Insurance Code requires a residential property insurance company to maintain statutory surplus as to policyholders of at least $15.0 million or ten percent of the insurer’s total liabilities, whichever is greater. The following table presents the amount of capital and surplus calculated in accordance with statutory accounting principles, which differs from GAAP, and an amount representing ten percent of total liabilities for each of the Insurance Entities as of the dates presented (in thousands):

| September 30, 2022 |  | December 31, 2021
Statutory capital and surplus |  |  |
UPCIC | $ | 386,934 |  |  | $ | 378,750 |
APPCIC | $ | 22,446 |  |  | $ | 16,104 |
Ten percent of total liabilities |  |  |
UPCIC | $ | 142,514 |  |  | $ | 122,292 |
APPCIC | $ | 2,145 |  |  | $ | 649 |

As of the dates in the table above, the Insurance Entities each exceeded the minimum statutory capitalization requirement. The Insurance Entities also met the capitalization requirements of the other states in which they are licensed as of September 30, 2022. Annually, the Insurance Entities each are also required to adhere to prescribed premium-to-capital surplus ratios and each have met those requirements.
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The following table summarizes combined net income (loss) for the Insurance Entities determined in accordance with statutory accounting practices for the periods presented (in thousands):

| Three Months Ended September 30, |  | Nine Months Ended September 30,
| 2022 |  | 2021 |  | 2022 |  | 2021
Combined net income (loss) | $ | (67,404) |  |  | $ | (22,903) |  |  | $ | (79,479) |  |  | $ | (21,723) |

The Insurance Entities are required by various state laws and regulations to maintain certain assets in depository accounts. The following table represents assets held by insurance regulators as of the dates presented (in thousands):

| September 30, 2022 |  | December 31, 2021
Restricted cash and cash equivalents | $ | 2,635 |  |  | $ | 2,635 |
Investments | $ | 3,242 |  |  | $ | 3,441 |

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6. Liability for Unpaid Losses and Loss Adjustment Expenses
Set forth in the following table is the change in liability for unpaid losses and LAE for the periods presented (in thousands):

| Three Months Ended September 30, |  | Nine Months Ended September 30,
| 2022 |  | 2021 |  | 2022 |  | 2021
Balance at beginning of period | $ | 186,349 |  |  | $ | 278,658 |  |  | $ | 346,216 |  |  | $ | 322,465 |
Less: Reinsurance recoverable | (18,972) |  |  | (113,157) |  |  | (115,860) |  |  | (119,522) |
Net balance at beginning of period | 167,377 |  |  | 165,501 |  |  | 230,356 |  |  | 202,943 |
Incurred related to: |  |  |  |  |  |  |
Current year | 327,729 |  |  | 176,092 |  |  | 708,774 |  |  | 480,782 |
Prior years | 2,715 |  |  | 11,489 |  |  | 7,080 |  |  | 17,983 |
Total incurred | 330,444 |  |  | 187,581 |  |  | 715,854 |  |  | 498,765 |
Paid related to: |  |  |  |  |  |  |
Current year | 216,735 |  |  | 180,473 |  |  | 453,350 |  |  | 386,302 |
Prior years | 57,227 |  |  | 42,841 |  |  | 269,001 |  |  | 185,638 |
Total paid | 273,962 |  |  | 223,314 |  |  | 722,351 |  |  | 571,940 |
Net balance at end of period | 223,859 |  |  | 129,768 |  |  | 223,859 |  |  | 129,768 |
Plus: Reinsurance recoverable | 929,768 |  |  | 82,720 |  |  | 929,768 |  |  | 82,720 |
Balance at end of period | $ | 1,153,627 |  |  | $ | 212,488 |  |  | $ | 1,153,627 |  |  | $ | 212,488 |

In late September 2022, Hurricane Ian made landfall on the Gulf Coast of Florida, continued across the state into the Atlantic Ocean and then made a second landfall in South Carolina. Current estimates for UVE’s gross ultimate loss is approximately $1 billion, well below its $3 billion reinsurance tower, with projected net exposure limited to retentions at its insurance and captive insurance entity subsidiaries. Estimated net losses and LAE exposure to the Insurance Entities, after estimated reinsurance recoveries, is $45 million. The Insurance Entities’ reinsurance recoveries include losses and LAE recoveries of $66 million from UVE’s prefunded captive insurance arrangement which is eliminated in consolidation. In total, net losses from Hurricane Ian, including losses and LAE incurred under the funded captive insurance arrangement, is currently estimated to be $111 million.
During the three months ended September 30, 2022, there was adverse prior years’ reserve development of $26.4 million gross, less $23.7 million ceded, resulting in $2.7 million net unfavorable development. The direct and net prior years’ reserve development for the quarter ended September 30, 2022 was principally due to gross reserve development on Hurricane Irma.
During the three months ended September 30, 2021, there was adverse prior years’ reserve development of $87.9 million gross, less $76.4 million ceded, resulting in $11.5 million net development. The direct and net prior years’ reserve development for the quarter ended September 30, 2021 was principally due to a direct increase in the ultimate losses for hurricanes of $81.7 million offset by ceded hurricane losses of $76.4 million resulting in net unfavorable development of $5.3 million. Direct losses increased for Hurricanes Irma and Sally. Excluding hurricanes, there was $6.2 million of direct and net prior years’ reserve development for the quarter ended September 30, 2021. This development, from the 2019 and prior accident years, resulted from the settlement on litigated claims exceeding prior estimated amounts.
During the nine months ended September 30, 2022, there was adverse prior years’ reserve development of $100.6 million gross, less $93.5 million ceded, resulting in $7.1 million net development. The direct and net prior years’ reserve development for the nine months ended September 30, 2022 was principally due to a gross reserve development on Hurricane Irma of $76.2 million, of which $69.2 million was ceded, resulting in net development on Hurricane Irma of $7.0 million in the period. Additionally, the Company concluded a favorable commutation during the quarter, favorably increasing ceded prior year loss payments which was offset by a provisory direct prior year IBNR amount, resulting in no net effect. Hurricane Matthew direct and net losses increased $0.1 million.
During the nine months ended September 30, 2021, there was adverse prior years’ reserve development of $296.9 million gross, less $278.9 million ceded, resulting in $18.0 million net development. The direct and net prior year reserve development for the nine months ended September 30, 2021 was principally due to a direct increase in the ultimate losses for several hurricanes of $282.9 million offset by ceded hurricane losses of $278.9 million resulting in net unfavorable reserve development of $4.0 million. Direct losses increased for Hurricanes Irma, Sally, Michael and Matthew. Excluding hurricanes, there was $14.0 million of direct and net prior years’ reserve development for the nine months ended September 30, 2021. This development, primarily from the 2019 and prior accident years, resulted from the settlement on litigated claims exceeding prior estimated amounts.
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7. Long-term Debt
Long-term debt consists of the following as of the dates presented (in thousands):

| September 30, |  | December 31,
| 2022 |  | 2021
Surplus note | $ | 5,882 |  |  | $ | 6,985 |
5.625% Senior unsecured notes | 100,000 |  |  | 100,000 |
Total principal amount | 105,882 |  |  | 106,985 |
Less: unamortized debt issuance costs | (2,914) |  |  | (3,309) |
Total long-term debt, net | $ | 102,968 |  |  | $ | 103,676 |

Surplus Note
In 2006, UPCIC entered into a $25.0 million surplus note with the State Board of Administration of Florida (the “SBA”) under Florida’s Insurance Capital Build-Up Incentive Program. The surplus note has a twenty-year term and accrues interest, adjusted quarterly based on the 10-year Constant Maturity Treasury Index. Principal and interest are paid periodically pursuant to terms of the surplus note. UPCIC was in compliance with the terms of the surplus note as of September 30, 2022.
Senior Unsecured Notes
On November 23, 2021, the Company entered into Note Purchase Agreements with certain institutional accredited investors and qualified institutional buyers pursuant to which the Company issued and sold $100 million of 5.625% Senior Unsecured Notes due 2026 (the “Notes”). The Purchase Agreements contain certain customary representations, warranties and covenants made by the Company.
The Notes were offered and sold by the Company in a private placement transaction in reliance on exemptions from the registration requirements of the Securities Act of 1933, as amended. On March 24, 2022, the Registration Statement registering the exchange of Notes for registered Notes was declared effective by the Securities and Exchange Commission, and all of the Notes have since been exchanged for registered Notes with identical financial terms.
The Notes are senior unsecured debt obligations that bear interest at the rate of 5.625% per annum, payable semi-annually in arrears on May 30 th and November 30 th of each year, beginning on May 30, 2022. The Notes are subject to adjustment from time to time in the event of a downgrade or subsequent upgrade of the rating assigned to the Notes. The Notes mature on November 26, 2026 at which time the entire $100.0 million of principal is due and payable. At any time on or after November 30, 2023, the Company may redeem all or part of the Notes at redemption prices (expressed as percentages of the principal amount) equal to (i) 102.81250% for the twelve-month period beginning on November 30, 2023; (ii) 101.40625% for the twelve-month period beginning on November 30, 2024 and (iii) 100.0% at any time thereafter, plus accrued and unpaid interest up to, but not including the redemption date.
The indenture governing the Notes contains financial covenants, terms, events of default and related cure provisions that are customary in agreements used in connection with similar transactions. As of September 30, 2022, the Company was in compliance with all applicable covenants, including financial covenants.
The Notes are unsecured senior obligations of the Company, are not obligations of, and are not guaranteed by, any subsidiary of the Company. The Notes rank equally in right of payment to the Unsecured Revolving Loan described below.
Unsecured Revolving Loan
The Company entered into a 364-day credit agreement and related revolving loan (“2021 Revolving Loan”) with JPMorgan Chase Bank, N.A. (“JPMorgan”) in August 2021. The Company and JPMorgan subsequently agreed during the term of the 2021 Revolving Loan to extend its expiration date until October 31, 2022. As discussed in “—Note 15 (Subsequent Events),” the Company renewed this agreement on October 31, 2022, increasing the credit facility to $37.5 million and modifying other terms. The October 31, 2022 Revolving Loan agreement (“2022 Revolving Loan”) makes available to the Company an unsecured revolving credit facility with an aggregate commitment not to exceed $37.5 million (previously $35.0 million) and carries an interest rate of prime rate plus a margin of 2%. The Company must pay an annual commitment of 0.50% of the unused portion of the commitment. Borrowings under the 2022 Revolving Loan mature on October 30, 2023, 364 days after the inception date of the 2022 Revolving Loan. The 2022 Revolving Loan is subject to annual renewals. The 2022 Revolving Loan contains customary financial and other covenants, with which the Company is in compliance. The Company did not borrow any amount under the 2021 Revolving Loan, and as of November 2, 2022, the Company has not borrowed any amount under the 2022 Revolving Loan.
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Interest Expense
The following table provides interest expense related to long-term debt during the periods presented (in thousands):

|  | Three Months Ended September 30, |  | Nine Months Ended September 30, |  |
|  | 2022 |  | 2021 |  | 2022 |  | 2021 |  |
Interest Expense: |  |  |  |  |  |  |  |  |  |
Surplus note |  | $ | 49 |  |  | $ | 29 |  |  | $ | 115 |  |  | $ | 84 |  |  |
5.625% Senior unsecured notes |  | 1,406 |  |  | — |  |  | 4,328 |  |  | — |  |  |
Non-cash expense (1) |  | 175 |  |  | — |  |  | 526 |  |  | — |  |  |
Total |  | $ | 1,630 |  |  | $ | 29 |  |  | $ | 4,969 |  |  | $ | 84 |  |  |

(1) Represents amortization of debt issuance costs.
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8. Stockholders’ Equity
From time to time, the Company’s Board of Directors may authorize share repurchase programs under which the Company may repurchase shares of the Company’s common stock in the open market. The following table presents repurchases of the Company’s common stock for the periods presented (in thousands, except total number of shares repurchased and per share data):

|  |  |  |  |  | Total Number of Shares |  |  |  | Average |  |
|  |  |  |  |  | Repurchased During the |  | Aggregate |  | Price Per |  |
|  |  |  | Dollar Amount |  | Nine Months Ended September 30, |  | Purchase |  | Share |  |
Date Authorized |  | Expiration Date |  | Authorized |  | 2022 |  | 2021 |  | Price |  | Repurchased |  | Plan Completed
November 3, 2020 |  | November 3, 2022 |  | $ | 20,000 |  |  | 806,324 |  |  | — |  |  | $ | 9,800 |  |  | $ | 12.15 |  |  |
November 3, 2020 |  | November 3, 2022 |  | $ | 20,000 |  |  | — |  |  | 116,886 |  |  | $ | 1,609 |  |  | $ | 13.77 |  |  |

See the “Condensed Consolidated Statements of Stockholders’ Equity” for a roll-forward of treasury shares.
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9. Income Taxes
During the three months ended September 30, 2022, the Company recorded approximately $21.0 million of income tax benefit compared to $6.3 million of income tax expense for the three months ended September 30, 2021. The effective tax rate (“ETR”) for the three months ended September 30, 2022 was 22.5% compared to a 23.7% ETR for the same period in 2021.
During the nine months ended September 30, 2022, the Company recorded approximately $12.7 million of income tax benefit compared to $24.3 million of income tax expense for the nine months ended September 30, 2021. The ETR for the nine months ended September 30, 2022 as well as the estimated annual ETR was 21.2%. The ETR for the nine months ended September 30, 2021 was 26.2%.
In calculating these rates, the Company considered a variety of factors including the forecasted full year pre-tax results, the federal tax rate, expected non-deductible expenses, estimated state income taxes and the allocation of income to state taxing authorities. As discussed in “—Note 14 (Variable Interest Entities)”, the results of the VIE can materially impact the state tax apportionment based on the materiality of results in the VIE compared to results in states subject to taxation. As a result of Hurricane Ian, the state tax benefit was reduced in the third quarter of 2022 due to the VIE’s absence of a state tax deduction. The annual effective tax rate can fluctuate throughout the year as estimates used in the tax provision for each quarter are updated as more relevant information becomes available. The Company’s final ETR for the full year will be dependent on the level of pre-tax income, discrete items, the apportionment of taxable income among state and other tax jurisdictions and the extent of non-deductible expenses in relation to pre-tax income.
Deferred tax assets and liabilities are recorded based on the difference between the financial statement and tax basis of assets and liabilities at the enacted tax rates. The Company reviews its deferred tax assets regularly for recoverability. Management has reviewed all available evidence, both positive and negative, in determining the need for a valuation allowance with respect to the gross deferred tax assets. In reviewing the gross deferred tax assets, management has concluded that the likelihood for utilization of these deferred tax assets is certain, and determined that a valuation allowance is not required on any of the deferred tax assets. Management will continue to analyze the gross deferred tax assets on a quarterly basis to determine whether there is a need for a valuation allowance in the future.
The Company files its income tax returns as prescribed by the tax laws of the jurisdictions in which it operates. As of September 30, 2022, the Company’s 2018 through 2020 tax years are still subject to examination by the Internal Revenue Service and various tax years remain open to examination in certain state jurisdictions.
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10. Earnings Per Share
Basic earnings per share (“EPS”) is computed based on the weighted average number of common shares outstanding for the period, excluding any dilutive common share equivalents. Diluted EPS reflects the potential dilution resulting from exercises of stock options, vesting of performance share units, vesting of restricted stock, vesting of restricted stock units, and conversion of preferred stock. In loss periods, stock options, vesting of performance share units, vesting of restricted stock, vesting of restricted stock units, and conversion of preferred stock are excluded from the calculation of diluted loss per share, as the inclusion of stock options, vesting of performance share units, vesting of restricted stock, vesting of restricted stock units, and conversion of preferred stock would have an anti-dilutive effect. There is no difference between basic and diluted income or loss per share.
The following table reconciles the numerator (i.e., income) and denominator (i.e., shares) of the basic and diluted EPS computations for the periods presented (in thousands, except per share data):

| Three Months Ended September 30, |  | Nine Months Ended September 30,
| 2022 |  | 2021 |  | 2022 |  | 2021
Numerator for EPS: |  |  |  |  |  |  |
Net income (loss) | $ | (72,275) |  |  | $ | 20,183 |  |  | $ | (47,368) |  |  | $ | 68,532 |
Less: Preferred stock dividends | (3) |  |  | (3) |  |  | (8) |  |  | (8) |
Income (loss) available to common stockholders | $ | (72,278) |  |  | $ | 20,180 |  |  | $ | (47,376) |  |  | $ | 68,524 |
Denominator for EPS: |  |  |  |  |  |  |
Weighted average common shares outstanding | 30,604 |  |  | 31,247 |  |  | 30,858 |  |  | 31,232 |
Plus: Assumed conversion of share-based compensation (1) | — |  |  | 65 |  |  | — |  |  | 45 |
Assumed conversion of preferred stock | — |  |  | 25 |  |  | — |  |  | 25 |
Weighted average diluted common shares outstanding | 30,604 |  |  | 31,337 |  |  | 30,858 |  |  | 31,302 |
Basic earnings (loss) per common share | $ | (2.36) |  |  | $ | 0.65 |  |  | $ | (1.54) |  |  | $ | 2.19 |
Diluted earnings (loss) per common share | $ | (2.36) |  |  | $ | 0.64 |  |  | $ | (1.54) |  |  | $ | 2.19 |

(1) |  | Represents the dilutive effect of unexercised stock options, unvested performance share units, unvested restricted stock units and unvested restricted stock.

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11. Other Comprehensive Income (Loss)
The following table provides the components of other comprehensive income (loss) on a pre-tax and after-tax basis for the periods presented (in thousands):

| Three Months Ended September 30,
| 2022 |  | 2021
| Pre-tax |  | Tax |  | After-tax |  | Pre-tax |  | Tax |  | After-tax
Net changes related to available-for-sale securities: |  |  |  |  |  |  |  |  |  |  |
Unrealized holding gains (losses) arising during the period | $ | (36,715) |  |  | $ | (9,026) |  |  | $ | (27,689) |  |  | $ | (1,635) |  |  | $ | (334) |  |  | $ | (1,301) |
Less: Reclassification adjustments for (gains) losses realized in net income (loss) | 210 |  |  | 52 |  |  | 158 |  |  | (690) |  |  | (164) |  |  | (526) |
Other comprehensive income (loss) | $ | (36,505) |  |  | $ | (8,974) |  |  | $ | (27,531) |  |  | $ | (2,325) |  |  | $ | (498) |  |  | $ | (1,827) |

| Nine Months Ended September 30,
| 2022 |  | 2021
| Pre-tax |  | Tax |  | After-tax |  | Pre-tax |  | Tax |  | After-tax
Net changes related to available-for-sale securities: |  |  |  |  |  |  |  |  |  |  |
Unrealized holding gains (losses) arising during the period | $ | (134,148) |  |  | $ | (32,978) |  |  | $ | (101,170) |  |  | $ | (13,796) |  |  | $ | (3,241) |  |  | $ | (10,555) |
Less: Reclassification adjustments for (gains) losses realized in net income (loss) | 1,423 |  |  | 350 |  |  | 1,073 |  |  | (243) |  |  | (57) |  |  | (186) |
Other comprehensive income (loss) | $ | (132,725) |  |  | $ | (32,628) |  |  | $ | (100,097) |  |  | $ | (14,039) |  |  | $ | (3,298) |  |  | $ | (10,741) |

The following table provides the reclassification adjustments for gains (losses) out of accumulated other comprehensive income for the periods presented (in thousands):

Details about Accumulated Other Comprehensive Income (Loss) Components |  | Amount Reclassified from Accumulated Other Comprehensive Income (Loss) |  | Affected Line Item in the Statement Where Net Income is Presented
| Three Months Ended September 30, |  | Nine Months Ended September 30, |
| 2022 |  | 2021 |  | 2022 |  | 2021 |
Unrealized gains (losses) on available-for-sale debt securities |  |  |  |  |  |  |  |  |  |
|  | $ | (210) |  |  | $ | 690 |  |  | $ | (1,423) |  |  | $ | 243 |  |  | Net realized gains (losses) on sale of securities
|  | 52 |  |  | (164) |  |  | 350 |  |  | (57) |  |  | Income taxes
Total reclassification for the period |  | $ | (158) |  |  | $ | 526 |  |  | $ | (1,073) |  |  | $ | 186 |  |  | Net of tax

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12. Commitments and Contingencies
Obligations under Multi-Year Reinsurance Contracts
The Company purchases reinsurance coverage to protect its capital and to limit its losses when certain major events occur. The Company’s reinsurance commitments generally run from June 1 st of the current year to May 31 st of the following year. Certain of the Company’s reinsurance agreements are for periods longer than one year. Amounts payable for coverage during the current June 1 st to May 31 st contract period are recorded as “Reinsurance Payable, net” in the Condensed Consolidated Balance Sheet. Effective March 26, 2021, UPCIC entered into a three-year reinsurance agreement with Cosaint Re Pte. Ltd., a reinsurance entity incorporated in Singapore that correspondingly issued notes in a Rule 144A offering to raise proceeds to collateralize its obligations under the reinsurance agreement. Amounts payable for coverage for the second year of the reinsurance agreement with Cosaint Re Pte. Ltd. are also recorded as “Reinsurance Payable, net.” Multi-year contract commitments for future years will be recorded at the commencement of the coverage period. Amounts payable for future reinsurance contract years that the Company is obligated to pay are: (1) $105.6 million in 2023, (2) $157.5 million in 2024, and (3) $66.3 million in 2025.
Litigation
Lawsuits and other legal proceedings are filed against the Company from time to time. Many of these legal proceedings involve claims under policies that the Company underwrites and reserves for as an insurer. The Company is also involved in various other legal proceedings and litigation unrelated to claims under the Company’s policies that arise in the ordinary course of business operations. Management believes that any liabilities that may arise as a result of these legal matters will not have a material adverse effect on the Company’s financial condition or results of operations. The Company contests liability and/or the amount of damages as appropriate in each pending matter.
In accordance with applicable accounting guidance, the Company establishes an accrued liability for legal matters when those matters present loss contingencies that are both probable and estimable.
Legal proceedings are subject to many uncertain factors that generally cannot be predicted with certainty, and the Company may be exposed to losses in excess of any amounts accrued. The Company currently estimates that the reasonably possible losses for legal proceedings, whether in excess of a related accrued liability or where there is no accrued liability, and for which the Company is able to estimate a possible loss, are immaterial. This represents management’s estimate of possible loss with respect to these matters and is based on currently available information. These estimates of possible loss do not represent our maximum loss exposure, and actual results may vary significantly from current estimates.
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13. Fair Value Measurements
GAAP defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants as of the measurement date. GAAP describes three approaches to measuring the fair value of assets and liabilities: the market approach, the income approach and the cost approach. Each approach includes multiple valuation techniques. GAAP does not prescribe which valuation technique should be used when measuring fair value, but does establish a fair value hierarchy that prioritizes the inputs used in applying the various techniques. Inputs broadly refer to the assumptions that market participants use to make pricing decisions, including assumptions about risk. Level 1 inputs are given the highest priority in the hierarchy while Level 3 inputs are given the lowest priority. Assets and liabilities carried at fair value are classified in one of the following three categories based on the nature of the inputs to the valuation technique used:
•Level 1 — Observable inputs that reflect unadjusted quoted prices for identical assets or liabilities in active markets as of the reporting date. Active markets are those in which transactions for the asset or liability occur in sufficient frequency and volume to provide pricing information on an ongoing basis.
•Level 2 — Observable market-based inputs or unobservable inputs that are corroborated by market data.
•Level 3 — Unobservable inputs that are not corroborated by market data. These inputs reflect management’s best estimate of fair value using its own assumptions about the assumptions a market participant would use in pricing the asset or liability.
Summary of Significant Valuation Techniques for Assets Measured at Fair Value on a Recurring Basis
Level 1
Common stock: Comprise actively traded, exchange-listed U.S. and international equity securities. Valuation is based on unadjusted quoted prices for identical assets in active markets that the Company can access.
Mutual funds: Comprise actively traded funds. Valuation is based on daily quoted net asset values for identical assets in active markets that the Company can access.
Level 2
U.S. government obligations and agencies: Comprise U.S. Treasury Bills or Notes or U.S. Treasury Inflation Protected Securities. The primary inputs to the valuation include quoted prices for identical assets in inactive markets or similar assets in active or inactive markets, contractual cash flows, benchmark yields and credit spreads.
Corporate bonds: Comprise investment-grade debt securities. The primary inputs to the valuation include quoted prices for identical assets in inactive markets or similar assets in active or inactive markets, contractual cash flows, benchmark yields and credit spreads.
Mortgage-backed and asset-backed securities: Comprise securities that are collateralized by mortgage obligations and other assets. The primary inputs to the valuation include quoted prices for identical assets in inactive markets or similar assets in active or inactive markets, contractual cash flows, benchmark yields, collateral performance and credit spreads.
Municipal bonds: Comprise debt securities issued by a state, municipality or county. The primary inputs to the valuation include quoted prices for identical assets in inactive markets or similar assets in active or inactive markets, contractual cash flows, benchmark yields and credit spreads.
Redeemable preferred stock: Comprise preferred stock securities that are redeemable. The primary inputs to the valuation include quoted prices for identical or similar assets in markets that are not active.
As required by GAAP, assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. The Company’s assessment of the significance of a particular input to the fair value measurement requires judgment, and may affect the placement of the asset or liability within the fair value hierarchy levels.
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The following tables set forth by level within the fair value hierarchy the Company’s assets measured at fair value on a recurring basis as of the dates presented (in thousands):

| Fair Value Measurements
| September 30, 2022
| Level 1 |  | Level 2 |  | Level 3 |  | Total
Available-For-Sale Debt Securities: |  |  |  |  |  |  |
U.S. government obligations and agencies | $ | — |  |  | $ | 11,598 |  |  | $ | — |  |  | $ | 11,598 |
Corporate bonds | — |  |  | 675,363 |  |  | — |  |  | 675,363 |
Mortgage-backed and asset-backed securities | — |  |  | 289,733 |  |  | — |  |  | 289,733 |
Municipal bonds | — |  |  | 12,438 |  |  | — |  |  | 12,438 |
Redeemable preferred stock | — |  |  | 7,651 |  |  | — |  |  | 7,651 |
Equity Securities: |  |  |  |  |  |  |
Common stock | 19,746 |  |  | — |  |  | — |  |  | 19,746 |
Mutual funds | 62,641 |  |  | — |  |  | — |  |  | 62,641 |
Total assets accounted for at fair value | $ | 82,387 |  |  | $ | 996,783 |  |  | $ | — |  |  | $ | 1,079,170 |

| Fair Value Measurements
| December 31, 2021
| Level 1 |  | Level 2 |  | Level 3 |  | Total
Available-For-Sale Debt Securities: |  |  |  |  |  |  |
U.S. government obligations and agencies | $ | — |  |  | $ | 26,806 |  |  | $ | — |  |  | $ | 26,806 |
Corporate bonds | — |  |  | 673,805 |  |  | — |  |  | 673,805 |
Mortgage-backed and asset-backed securities | — |  |  | 316,118 |  |  | — |  |  | 316,118 |
Municipal bonds | — |  |  | 14,574 |  |  | — |  |  | 14,574 |
Redeemable preferred stock | — |  |  | 9,152 |  |  | — |  |  | 9,152 |
Equity Securities: |  |  |  |  |  |  |
Common stock | 3,683 |  |  | — |  |  | — |  |  | 3,683 |
Mutual funds | 43,651 |  |  | — |  |  | — |  |  | 43,651 |
Total assets accounted for at fair value | $ | 47,334 |  |  | $ | 1,040,455 |  |  | $ | — |  |  | $ | 1,087,789 |

The Company utilizes third-party independent pricing services that provide a price quote for each available-for-sale debt security and equity security. Management reviews the methodology used by the pricing services. If management believes that the price used by the pricing service does not reflect an orderly transaction between participants, management will use an alternative valuation methodology. There were no adjustments made by the Company to the prices obtained from the independent pricing source for any available-for-sale debt security or equity security included in the tables above.
The following table summarizes the carrying value and estimated fair values of the Company’s financial instruments not carried at fair value as of the dates presented (in thousands):

| September 30, 2022 |  | December 31, 2021
| Carrying Value |  | Estimated Fair Value |  | Carrying Value |  | Estimated Fair Value
Liabilities (debt): |  |  |  |  |  |  |
Surplus note (1) | $ | 5,882 |  |  | $ | 5,516 |  |  | $ | 6,985 |  |  | $ | 6,723 |
5.625% Senior unsecured notes (2) | 100,000 |  |  | 99,042 |  |  | 100,000 |  |  | 99,464 |
Total debt | $ | 105,882 |  |  | $ | 104,558 |  |  | $ | 106,985 |  |  | $ | 106,187 |

(1) The fair value of the surplus note was determined by management from the expected cash flows discounted using the interest rate quoted by the holder. The SBA is the holder of the surplus note and the quoted interest rate is below prevailing rates quoted by private lending institutions. However, as the Company’s use of funds from the surplus note is limited by the terms of the agreement, the Company has determined the interest rate quoted by the SBA to be appropriate for purposes of establishing the fair value of the note (Level 3).
(2) The fair value of the senior unsecured notes was determined based on pricing from quoted prices for similar assets in active markets and was included as Level 2.
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14. Variable Interest Entities
The Company entered into a reinsurance arrangement effective June 1, 2022 with its existing captive reinsurance arrangement which uses Isosceles Insurance Ltd., a Bermuda licensed insurance company, through the establishment of a Bermuda separate account named “Separate Account UVE-01”, which is a VIE in the normal course of business and consolidated as a VIE since the Company is the primary beneficiary. The VIE files a federal tax return however the VIE is domiciled in Bermuda and therefore is not subject to state income taxes. See “—Note 9 (Income Taxes).”
The reinsurance captive arrangement entered into in the prior year, which was effective June 1, 2021 through May 31, 2022, was terminated effective December 1, 2021, pursuant to the terms of the agreement. In connection with the termination of the agreement, the affiliates agreed to release funds held in trust due to one of the Insurance Entities (UPCIC) and the balance to the participant of the separate account (UVE) in December 2021.
On June 1, 2022, the VIE entered into a new reinsurance arrangement with UPCIC and on September 28, 2022 Hurricane Ian made landfall on the Gulf Coast of Florida triggering a full policy limit loss, totaling $66 million, issued by the VIE to UPCIC. Amounts due under this policy were fully paid in September 2022 to UPCIC.
The following table presents, on a consolidated basis, the balance sheet classification and exposure of restricted cash held in a reinsurance trust account, which can be used only to settle specific reinsurance obligations of the VIE as of the dates presented.

| September 30, 2022 |  | December 31, 2021
Restricted cash and cash equivalents | $ | 67 |  |  | $ | — |  |

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15. Subsequent Events
The Company performed an evaluation of subsequent events through the date the financial statements were issued and determined there were no recognized or unrecognized subsequent events that would require an adjustment or additional disclosure in the condensed consolidated financial statements as of September 30, 2022 except as disclosed below.
Unsecured Revolving Loan
On October 31, 2022, the Company entered into a 364-day credit agreement and related revolving loan (“2022 Revolving Loan”) with JPMorgan Chase Bank, N.A. replacing a similar agreement which expired on October 31, 2022 (“2021 Revolving Loan”). The 2022 Revolving Loan makes available to the Company an unsecured revolving credit facility with an aggregate commitment not to exceed $37.5 million (previously $35.0 million) and carries an interest rate of prime rate plus a margin of 2%. the Company must pay an annual fee of 0.50% of the unused portion of the commitment. Borrowings under the 2022 Revolving Loan mature on October 30, 2023, 364 days after the inception date of the 2022 Revolving Loan. The 2022 Revolving Loan is subject to annual renewals and contains customary financial and other covenants, with which the Company remains in compliance. The Company did not borrow under the 2021 Revolving Loan, and as of November 2, 2022, the Company has not borrowed any amount under the new 2022 Revolving Loan. See ”—Note 7 ( Long-Term Debt).”
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Unless the context otherwise requires, all references to “we,” “us,” “our,” and “Company” refer to Universal Insurance Holdings, Inc. (“UVE”) and its wholly-owned subsidiaries. You should read the following discussion together with our unaudited condensed consolidated financial statements (“Financial Statements”) and the related notes thereto included in “Part I, Item 1—Financial Statements,” and our audited condensed consolidated financial statements and the related notes thereto included in “Part II, Item 8—Financial Statements and Supplementary Data” in our Annual Report on Form 10-K for the year ended December 31, 2021. Operating results for any one quarter are not necessarily indicative of results to be expected for any other quarter or for the year.
Cautionary Note Regarding Forward-Looking Statements
In addition to historical information, this report may contain “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). The forward-looking statements anticipate results based on our estimates, assumptions and plans that are subject to uncertainty. These forward-looking statements may be identified by their use of words like “plans,” “seeks,” “expects,” “will,” “should,” “anticipates,” “estimates,” “intends,” “believes,” “likely,” “targets,” and other words with similar meanings. These statements may address, among other things, our strategy for growth, catastrophe exposure and other risk management, product development, investment results, regulatory approvals, market position, expenses, financial results, litigation and reserves. We believe that these statements are based on reasonable estimates, assumptions and plans. However, if the estimates, assumptions or plans underlying the forward-looking statements prove inaccurate or if other risks or uncertainties arise, actual results could differ materially from those communicated in these forward-looking statements as a result of the risks set forth below, which are a summary of those set forth in our Annual Report on Form 10-K for the year ended December 31, 2021. We undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events, or otherwise.
Risks and uncertainties that may affect, or have affected, our financial condition and operating results include, but are not limited to, the following:
•Unanticipated increases in the severity or frequency of claims, including those relating to catastrophes, severe weather events and changing climate conditions, which, in some instances, have exceeded, and in the future may exceed our reserves established for claims;
•Failure of our risk mitigation strategies, including failure to accurately and adequately price the risks we underwrite and to include effective exclusions and other loss limitation provisions in our insurance policies;
•Loss of independent insurance agents and inability to attract new independent agents;
•Reliance on models, which are inherently uncertain, as a tool to evaluate risks;
•The continued availability of reinsurance at current levels and prices, and our ability to collect payments due from our reinsurers;
•Changes in industry trends, including changes due to the cyclical nature of the industry and increased competition;
•Geographic concentration of our business in Florida and the effectiveness of our growth and diversification strategy in new markets;
•Loss of key personnel and inability to attract and retain talented employees;
•Failure to comply with existing and future guidelines, policies and legal and regulatory standards;
•The ability of our claims professionals to effectively manage claims;
•Litigation or regulatory actions that could result in significant damages, fines or penalties;
•A downgrade in our Financial Stability Rating® and its impact on our competitive position, the marketability of our product offerings, our liquidity and profitability;
•The impact on our business and reputation of data and security breaches due to cyber-attacks or our inability to effectively adapt to changes in technology;
•Our dependence on the returns of our investment portfolio, which are subject to market risk;
•Legal, regulatory or tax changes that increase our operating costs and decrease our profitability, such as limitations on rate changes or requirements to participate in loss sharing;
•Our dependence on dividends and permissible payments from our subsidiaries;
•The ability of our Insurance Entities to comply with statutory capital and surplus minimums and other regulatory and licensing requirements; and
•The ongoing impact of the COVID-19 pandemic on our business and the economy in general.
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OVERVIEW
We are a vertically integrated holding company offering property and casualty insurance and value-added insurance services. We develop, market and underwrite insurance products for consumers predominantly in the personal residential homeowners’ line of business and perform substantially all other insurance-related services for our primary insurance entities, including risk management, claims management, and distribution. Our primary insurance entities, Universal Property & Casualty Insurance Company (“UPCIC”) and American Platinum Property and Casualty Insurance Company (“APPCIC” and together with UPCIC, the “Insurance Entities”), offer insurance products through both our appointed independent agent network and our online distribution channels across 19 states (primarily in Florida), with licenses to write insurance in two additional states. The Insurance Entities seek to produce an underwriting profit (defined as earned premium minus losses, loss adjustment expense (“LAE”), policy acquisition costs and other operating costs) over the long term; maintain a conservative balance sheet to prepare for years in which the Insurance Entities are not able to achieve an underwriting profit; and generate investment income on assets.
The following Management’s Discussion and Analysis (“MD&A”) is intended to assist in an understanding of our financial condition and results of operations. This MD&A should be read in conjunction with our Financial Statements and accompanying Notes appearing elsewhere in this Report (the “Notes”). In addition, reference should be made to our audited Consolidated Financial Statements and accompanying Notes to Consolidated Financial Statements and “Item 7—Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our Annual Report on Form 10-K for the year ended December 31, 2021. Except for the historical information contained herein, the discussions in this MD&A contain forward-looking statements that involve risks and uncertainties. Our future results could differ materially from those discussed herein. Factors that could cause or contribute to such differences include, but are not limited to, those discussed above under “Cautionary Note Regarding Forward-Looking Statements.”
Trends
Florida Trends
We are currently working through a cycle to improve long-term rate adequacy and earnings for the Insurance Entities by increasing rates and managing exposures, while taking advantage of what we believe to be opportunities in a dislocated market. The Florida personal lines homeowners’ market currently can be characterized as a “hard market”, where insurance premium rates are escalating, insurers are reducing coverages, and underwriting standards are tightening as insurers closely monitor insurance rates and manage coverage capacity. Due to conditions in the Florida market and factors more generally affecting the U.S. and global reinsurance markets, reinsurance capacity in recent years has also been subject to less favorable pricing and terms. These market forces decrease competition among admitted insurers, and ultimately result in the increased use of Citizens Property Insurance Corporation (“Citizens”), which was created to be the State’s residual property insurance market. In recent years, in response to adverse behaviors and conditions in the Florida residential market, most admitted market competitors have sought and often received approval for significant rate increases. Meanwhile, Citizens’ rate increases are limited by law, resulting in its policies, in a hard market, becoming priced lower than admitted market policies. This causes Citizens to become viewed as a desirable alternative to the admitted market as admitted market insurers manage through the hard market challenges. Our Insurance Entities likewise have taken and continue to take action to manage through this hard market by increasing rates and prudently managing exposures while also seeking to maintain their competitive position in the market and supporting our current policyholders and agents.
While addressing rate adequacy for the Insurance Entities, we continue to experience increased costs for losses and LAE in the Florida market, where an industry has developed around the solicitation, filing and litigation of personal residential claims. These dynamics have been made worse by the litigation financing industry, which in some cases, funds these actions. In addition, rising inflation, as seen in the cost of labor and material supplies, has further escalated costs associated with the settlement of claims. These behaviors and related rising repair costs are a chief contributing factor for the rate increases in this market. These behaviors result in a pattern of continued increases in year-over-year levels of represented claims, the increases in purported claim amounts, and increased demands for attorneys’ fees. Active solicitation of personal residential claims in Florida by policyholder representatives, remediation companies and repair companies has led to an increase in the frequency and severity of personal residential claims in Florida, exceeding historical levels and levels seen in other jurisdictions. Information prepared by the Florida Office of Insurance Regulation also shows that claims in Florida are litigated at a substantially disproportionate rate when compared to other states. This is largely due to a Florida statute providing a one-way right of attorneys’ fees against insurers which has, when coupled with certain other statutes and judicial rulings, produced a legal environment in Florida that encourages litigation, in many cases without regard to the underlying merits of the claims. The one-way right to attorneys’ fees essentially means that unless an insurer’s position is entirely upheld in litigation, the insurer must pay the plaintiff’s attorneys’ fees in addition to its own defense costs. This affects not only claims that are litigated to resolution, but also the settlement discussions that take place with nearly all litigated claims. This also affects a large number of claims from inception or during the adjusting process as a substantial and growing percentage of policyholders obtain representation early in the process, and sometimes even before notifying insurers of their claims. These market conditions also add, and will continue to add, complexity to efforts to efficiently and expeditiously adjust claims. This is due to an increasing number of policyholders who have one or more recent prior losses with the Insurance Entities or with other insurers, which then require evaluation during subsequent claims and determinations regarding whether property has been repaired consistently with the scope and amount of damage previously asserted.
The one-way right to attorney fees creates a nearly risk-free environment, and incentive, for attorneys to pursue litigation against insurers. The result has been a substantial increase in represented and litigated claims in Florida, far outpacing levels experienced in other states. In April 2021, the Florida legislature passed a bill intending to curtail the adverse claim trends impacting the
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Florida homeowners’ insurance market. Most provisions of the bill went into effect on July 1, 2021. Among its provisions, the bill creates a new pre-suit notice requirement wherein an insured must make a formal monetary demand of a residential property insurer before commencing suit. The Company has established an internal team to review and respond to these pre-suit demands in a further effort to resolve disputes before litigation ensues. Another provision of the new law reduces the time period in which to file a new or reopened claim to two years following the date of loss. In light of the recent enactment of these reforms, it is premature to assess whether the reforms will have their intended effect. Whether these changes are beneficial to consumers, insurers, insurance company holding systems or the residential property insurance market as a whole may not be fully known for some time.
In a further effort to alleviate concerns in the Florida property insurance market, Florida’s Governor called a special session of the legislature in May 2022. The legislature passed, and the Governor promptly signed into law, several additional reforms intended to curtail litigation abuses. Among other things, the new law precludes the assignment of policyholders’ rights to attorneys’ fees, allows plaintiffs’ attorneys to receive fee multipliers only in rare and exceptional cases, and requires plaintiffs to establish breaches of the insurance policy before pursuing related bad faith actions. Because the new law only recently was adopted, its impact on claims and claims-related costs, including litigation, will not be fully known for some time.
Despite our initiatives, such as those mentioned above, our costs to settle claims in Florida have increased for the reasons noted herein. For example, the Company continues to adjust its estimate of expected losses and has increased its current year loss estimates and increased estimates associated with prior years’ claims. Over the past three years, even as we have increased our estimates of prospective losses each year, we have recorded adverse claim development on prior years’ loss reserves and further strengthened current year losses during the year to address the increasing impact Florida’s market disruptions, as well as the impact of rising costs of building materials and labor, have had on the claims process and the establishment of reserves for losses and LAE. The full extent and duration of these market disruptions and inflationary pressures are unknown and still unfolding, and we will monitor the impact of such disruptions on the recording and reporting of claim costs.
The Company has taken a series of steps over time to mitigate the financial impact of these negative trends in the Florida market. We also have closely monitored rate levels, especially in the Florida market, and have submitted rate filings based upon evolving data. However, because rate filings rely upon past loss and expense data and take time to develop, file and implement, we can experience significant delays between identifying needed rate adjustments, gaining approval of rate changes, and ultimately collecting and earning the resulting increased premiums. This is particularly the case in an era of rising costs such as the current Florida market, in which the costs of losses and loss adjustment expenses continue to increase due to Florida’s outsized claims litigation environment and inflationary pressure. In addition, the Company has implemented several initiatives in its claims department in response to the adverse market trends. We utilize our process called Fast Track, which is an initiative to handle straightforward, meritorious claims as promptly as possible to mitigate the adverse impacts that can be seen with claims that remain open for longer periods. In addition, we increased our emphasis on subrogation to reduce our net losses while also recovering policyholders’ deductibles when losses are attributable to the actions of others. We have an internal staff of trained water remediation experts to address the extraordinary number of purported water damage claims filed by policyholders and vendors. We developed a specialized in-house unit for responding to the unique aspects of represented claims, and we have substantially increased our in-house legal staff in an effort to address the increase in litigated or represented claims as cost-effectively as possible.
Additionally, we have taken steps to implement claim settlement rules associated with the Florida legislation passed in 2019 designed to reduce the negative effects of claims involving assignments of benefits (“AOB”). See “Part I— Item 1—Business—Government Regulation” in our Annual Report on Form 10-K for the year ended December 31, 2021. An AOB is a document signed by a policyholder that allows a third party to be paid for services performed for an insured homeowner who would normally be reimbursed by the insurance company directly after making a claim. Prior to the AOB reform legislation, the Company experienced an increase in AOB-related litigation initiated by vendors, in many cases unbeknownst to policyholders. Claims paid under an AOB often involve unnecessary litigation, with the Company required to pay both its own defense costs and those of the plaintiff, and, as a result, cost the Company significantly more than claims settled when an AOB is not involved. In 2019, the Florida legislature passed legislation designed to increase consumer protections against AOB abuses and reduce AOB-related litigation. The legislature added to these AOB-related reforms in the recently concluded 2022 special legislative session, during which it passed a new law precluding policyholders’ assignments of attorneys’ fees. Prior to the recent 2022 law change, the overall impact of the deterioration in claims-related tactics and behaviors, including other first-party litigation, continued to outpace benefits arising from the 2019 AOB reform legislation. Following the recent 2022 special legislative session, the Company intends to adopt procedures reflecting the new AOB law and monitor its effects. Due to the recent enactment of this law, its impact might not be fully know for some time.
Following legislation adopted in Florida’s 2021 legislative session, we also have established procedures and dedicated personnel to a new pre-suit notice and offer process. The new process requires policyholders or their attorneys to notify insurers at least ten days before commencing litigation and allows insurers an opportunity to make pre-suit settlement offers. The policyholders’ ability to recover attorneys’ fees is determined according to a scale that compares the ultimate outcomes of the cases to the insurers’ pre-suit offers. Although this new process is intended to reduce claims litigation and encourage settlements, it is too early to evaluate whether it will be successful in limiting the types of settlement demands and litigation that have plagued the Florida market or in offsetting other factors adversely affecting the market such as increased costs of building materials and labor.
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Summary of Rate Increases and Cost of Living Adjustments
Below is a summary of recent rate changes and cost of living adjustments that are in the process of being implemented and earned as policies renew and new business is written and earned under these new rates and insured values:
•Annual primary rate changes
▪The following rate changes have been or are in the process of being implemented:
◦In May 2022, the Company filed a rate increase with the FLOIR for an overall 14.9% rate increase for UPCIC on Florida personal residential homeowners’ line of business which became effective June 1, 2022, for new business and November 4, 2022, for renewals.
◦In September 2021, the FLOIR approved an overall 14.9% rate increase for UPCIC on Florida personal residential homeowners’ line of business, effective September 2021 for new business and November 2021 for renewals.
◦In December 2020, the FLOIR approved an overall 7.0% rate increase for UPCIC on Florida personal residential dwelling lines of business, effective December 2020 for new business and March 2021 for renewals.
◦In May 2020, the FLOIR approved an overall 12.4% rate increase for UPCIC on Florida personal residential homeowners’ line of business, effective May 2020 for new business and July 2020 for renewals.
◦In addition, during the past year, rate increases for UPCIC were approved in Alabama, Georgia, Indiana, Minnesota, North Carolina, South Carolina, Pennsylvania and Virginia.
•Annual reinsurance rate increases
▪The following rate changes have been or are in the process of being implemented:
◦In December 2021, the FLOIR approved an overall 3.9% rate increase for UPCIC on Florida personal residential homeowners’ line of business, effective January 2022 for new business and March 2022 for renewals.
◦In December 2020, the FLOIR approved an overall 7.0% rate increase for UPCIC on Florida personal residential homeowners’ line of business, effective December 2020 for new business and March 2021 for renewals.
•Inflationary coverage adjustments
▪The following historical Inflation adjustments (“Inflation Guard”) have been or are in the process of being implemented. These are adjustments to policy coverage amounts designed to facilitate the polices’ adherence to insurance-to-value requirements. The coverage adjustments provide a degree of protection insureds have against inflationary pressures while also resulting in additional premium to the Company to cover the increased claim costs driven by inflation factors.
◦July 1, 2022 was 1.119 (11.9% average increase)
◦July 1, 2021 was 1.189 (18.9% average increase)
◦July 1, 2020 was 1.054 (5.4% average increase)
◦July 1, 2019 was 1.028 (2.8% average increase)
Impact of COVID-19
We have not seen a direct material impact from COVID-19 on our business, our financial position, our liquidity, or our ability to service our policyholders and maintain critical operations. Indirectly, inflationary pressures, in part due to supply chain and labor constraints during the pandemic, have affected and continue to affect claims costs and, to a lesser degree, other expenses. The ultimate impact of the COVID-19 pandemic, or future pandemics, on our business and on the economy in general cannot be predicted.
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KEY PERFORMANCE INDICATORS
The Company considers the measures and ratios in the following discussion to be key performance indicators for its businesses. Management believes that these indicators are helpful in understanding the underlying trends in the Company’s businesses. Some of these indicators are reported on a quarterly basis and others on an annual basis.
These indicators may not be comparable to other performance measures used by the Company’s competitors and should only be evaluated together with our condensed consolidated financial statements and accompanying notes.
In addition to our key performance indicators and other financial measures presented in accordance with United States Generally Accepted Accounting Principles (“GAAP”), management also uses certain non-GAAP financial measures to evaluate the Company's financial performance and the overall growth in value generated for the Company’s common shareholders. Management believes that non-GAAP financial measures, which may be defined differently by other companies, help to explain the Company’s results to investors in a manner that allows for a more complete understanding of the underlying trends in the Company’s business. The non-GAAP measures should not be viewed as a substitute for those determined in accordance with GAAP. The calculation of these key financial measures including the reconciliation of non-GAAP measures to the nearest GAAP measure are found below under ― “Non-GAAP Financial Measures.”
Definitions of Key Performance Indicators and GAAP and Non-GAAP Measures
Adjusted book value per common share ― is a non-GAAP measure, that is calculated as adjusted common stockholders’ equity divided by common shares outstanding at the end of the period. Management believes this metric is meaningful, as it allows investors to evaluate underlying book value growth by excluding the impact of interest rate volatility.
Adjusted common stockholders' equity ― is a non-GAAP measure, that is calculated by GAAP common stockholders' equity, excluding accumulated other comprehensive income (loss). Management believes this metric is meaningful, as it allows investors to evaluate underlying growth in stockholders’ equity by excluding the impact of interest rate volatility.
Adjusted net income (loss) attributable to common stockholders ― is a non-GAAP measure, that is calculated by GAAP net income (loss) attributable to common stockholders, excluding net realized gains (losses) on investment and net changes in unrealized gains (losses) of equity securities, net of tax. Management believes this metric is meaningful, as it allows investors to evaluate underlying profitability and enhances comparability across periods, by excluding items that are heavily impacted by investment market fluctuations and other economic factors and are not indicative of operating trends.
Adjusted operating income (loss) ― is a non-GAAP measure, that is computed by GAAP operating income (loss), excluding net realized gains (losses) on investment and net changes in unrealized gains (losses) of equity securities. Management believes this metric is meaningful, as it allows investors to evaluate underlying profitability and enhances comparability across periods, by excluding items that are heavily impacted by investment market fluctuations and other economic factors and are not indicative of operating trends.
Adjusted operating income (loss) margin ― is a non-GAAP measure, which is computed by adjusted operating income (loss) divided by core revenue. Management believes this metric is meaningful, as it allows investors to evaluate underlying profitability and enhances comparability across periods, by excluding items that are heavily impacted by investment market fluctuations and other economic factors and are not indicative of operating trends.
Adjusted return on common equity (Adjusted “ROCE”) ― is a non-GAAP measure, that is calculated by actual or annualized adjusted net income attributable to common stockholders divided by average adjusted common stockholders' equity, with the denominator excluding current period income statement net realized gains (losses) on investments and net changes in unrealized gains (losses) of equity securities, net of tax. Management believes this metric is meaningful, as it allows investors to evaluate underlying profitability and enhances comparability across periods, by excluding items that are heavily impacted by investment market fluctuations and other economic factors and are not indicative of operating trends.
Book Value Per Common Share ― total stockholders’ equity, adjusted for preferred stock liquidation, divided by the number of common shares outstanding as of a reporting period. Book value per common share is the excess of assets over liabilities at a reporting period attributed to each share of stock. Changes in book value per common share informs shareholders of retained equity in the Company on a per share basis which may assist in understanding market value trends for the Company’s stock.
Combined Ratio ― the combined ratio is a measure of underwriting profitability for a reporting period and is calculated by dividing total operating costs and expenses (which is made up of losses and LAE and general and administrative expenses) by premiums earned, net, which is net of ceded premiums earned. Changes to the combined ratio over time provide management with an understanding of costs to operate its business in relation to net premiums it is earning and the impact of rate, underwriting and other business management actions on underwriting profitability. A combined ratio below 100% indicates underwriting profit; a combined ratio above 100% indicates underwriting losses.
Core Loss Ratio ― a common operational metric used in the insurance industry to describe the ratio of current accident year expected losses and LAE to premiums earned. Core loss ratio is an important measure identifying profitability trends of premiums in force. Core losses consists of all other losses and LAE, excluding weather events beyond those expected and prior years’ reserve development. The financial benefit from the management of claims, including claim fees ceded to reinsurers, is recorded in the condensed consolidated financial statements as a reduction to core losses.
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Core revenue ― is a non-GAAP measure, that is calculated by total GAAP revenue, excluding net realized gains (losses) on investments and net changes in unrealized gains (losses) of equity securities. Management believes this metric is meaningful, as it allows investors to evaluate underlying revenue trends and enhances comparability across periods, by excluding items that are heavily impacted by investment market fluctuations and other economic factors and are not indicative of operating trends.
Debt-to-Equity Ratio ― long-term debt divided by stockholders’ equity. This ratio helps management measure the amount of financing leverage in place in relation to equity and future leverage capacity.
Debt-to-Total Capital Ratio ― long-term debt divided by the sum of total stockholders’ equity and long-term debt (often referred to as total capital resources). This ratio helps management measure the amount of financing leverage in place (long-term debt) in relation to total capital resources and future leverage capacity.
Diluted adjusted earnings per common share ― is a non-GAAP measure, which is calculated by adjusted net income available to common stockholders divided by weighted average diluted common shares outstanding. Management believes this metric is meaningful, as it allows investors to evaluate underlying revenue trends and enhances comparability across periods, by excluding items that are heavily impacted by investment market fluctuations and other economic factors and are not indicative of operating trends.
Direct Premiums Written (“DPW”) ― reflects the total value of policies issued during a period before considering premiums ceded to reinsurers. Direct premiums written, comprised of renewal premiums, endorsements and new business, is initially recorded as unearned premium in the balance sheet which is then earned pro-rata over the next year or remaining policy term. Direct premiums written reflects current trends in the Company’s sale of property and casualty insurance products and amounts that will be recognized as earned premiums in the future.
DPW (Florida) ― includes only DPW in the state of Florida. This measure allows management to analyze growth in our primary market and is also a measure of business concentration risk.
Expense Ratio (Including Policy Acquisition Cost Ratio and Other Operating Cost Ratio) ― calculated as general and administrative expenses as a percentage of premiums earned, net. General and administrative expenses is comprised of policy acquisition costs and other operating costs, which includes such items as underwriting costs, facilities and corporate overhead. The expense ratio, including the sub-expense ratios of policy acquisition cost ratio and other operating cost ratio, are indicators to management of the Company’s cost efficiency in acquiring and servicing its business and the impact of expense items to overall profitability.
Losses and Loss Adjustment Expense Ratio or Loss and LAE Ratio ― a measure of the cost of claims and claim settlement expenses incurred in a reporting period as a percentage of premiums earned in that same reporting period. Losses and LAE incurred in a reporting period includes both amounts related to the current accident year and prior accident years, if any, referred to as development. Ultimate losses and LAE are based on actuarial estimates with changes in those estimates recognized in the period the estimates are revised. Losses and LAE consist of claim costs arising from claims occurring and settling in the current period, an estimate of claim costs for reported but unpaid claims, an estimate of unpaid claim costs for incurred-but-not-reported claims and an estimate of claim settlement expenses associated with reported and unreported claims which occurred during the reporting period. The loss and LAE ratio can be measured on a direct basis, which includes losses and LAE divided by direct earned premiums, or on a net basis, which includes losses and LAE after amounts have been ceded to reinsurers divided by net earned premiums (i.e., direct premium earned less ceded premium earned). The net loss and LAE ratio is a measure of underwriting profitability after giving consideration to the effect of reinsurance. Trends in the net loss and LAE ratio are an indication to management of current and future profitability.
Monthly Weighted Average Renewal Retention Rate ― measures the monthly average of policyholders that renew their policies over the period of a calendar year. This measure allows management to assess customer retention.
Premiums Earned, Net ― the pro-rata portion of current and previously written premiums that the Company recognizes as earned premium during the reporting period, net of ceded premium earned. Ceded premiums are premiums paid or payable by the Company for reinsurance protection. Written premiums are considered earned and are recognized pro-rata over the policy coverage period. Premiums earned, net is a measure that allows management to identify revenue trends.
Policies in Force ― represents the number of active policies with coverage in effect as of the end of the reporting period. The change in the number of policies in force is a growth measure and provides management with an indication of progress toward achieving strategic objectives. Inherent seasonality in our business makes this measure more useful when comparing each quarter’s balance to the same quarter in prior years.
Premium in Force ― is the amount of the annual direct written premiums previously recorded by the Company for policies which are still active as of the reporting date. This measure assists management in measuring the level of insured exposure and progress toward meeting revenue goals for the current year, and provides an indication of business available for renewal in the next twelve months. Inherent seasonality in our business makes this measure more useful when comparing each quarter’s balance to the same quarter in prior years.
Return on Average Common Equity (“ROCE”) ― calculated by actual or annualized net income attributable to common stockholders divided by average common stockholders' equity. ROCE is a capital profitability measure of how efficiently management creates profits.
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Total Insured Value ― represents the amount of insurance limits available on a policy for a single loss based on all policies active as of the reporting date. This measure assists management in measuring the level of insured exposure.
Unearned Premiums ― represents the portion of direct premiums corresponding to the time period remaining on an insurance policy and available for future earning by the Company. Trends in unearned premiums generally indicate expansion, if growing, or contraction, if reducing, which are important indicators to management. Inherent seasonality in our business makes this measure more useful when comparing each quarter’s balance to the same quarter in prior years.
Weather events ― an estimate of losses and LAE from weather events occurring during the current accident year that exceed initial estimates of expected weather events when establishing the core loss ratio for each accident year. This metric informs management of factors impacting overall current year profitability.
REINSURANCE
Reinsurance enables our Insurance Entities to limit potential exposures to catastrophic events. Reinsurance contracts are typically classified as treaty or facultative contracts. Treaty reinsurance provides coverage for all or a portion of a specified group or class of risks ceded by the primary insurer, while facultative reinsurance provides coverage for specific individual risks. Within each classification, reinsurance can be further classified as quota share or excess of loss. Quota-share reinsurance is where the primary insurer and the reinsurer share proportionally or pro-rata in the direct premiums and losses of the insurer. Excess-of-loss reinsurance indemnifies the direct insurer or reinsurer for all or a portion of the loss in excess of an agreed upon amount or retention.
Developing and implementing our reinsurance strategy to adequately protect our balance sheet and Insurance Entities in the event of one or more catastrophes while maintaining efficient reinsurance costs has been a key strategic priority for us. In order to limit the Insurance Entities’ potential exposure to catastrophic events, we purchase significant reinsurance from third-party reinsurers and the Florida Hurricane Catastrophe Fund (“FHCF”). The Florida Office of Insurance Regulation (“FLOIR”) requires the Insurance Entities, like all residential property insurance companies doing business in Florida, to have a certain amount of capital and reinsurance coverage in order to cover losses upon the occurrence of a single catastrophic event and a series of catastrophic events occurring in the same hurricane season. The Insurance Entities’ respective 2022-2023 reinsurance programs meet the FLOIR’s requirements, which are based on, among other things, successfully demonstrating cohesive and comprehensive reinsurance programs that protect the policyholders of our Insurance Entities as well as satisfying a series of stress test catastrophe loss scenarios based on past historical events. Similarly, the Insurance Entities’ respective 2022-2023 reinsurance programs meet the stress test and review requirements of Demotech, Inc., for maintaining Financial Stability Ratings® of A (Exceptional).
We believe the Insurance Entities’ retentions under their respective reinsurance programs are appropriate and structured to protect policyholders. We test the sufficiency of the reinsurance programs by subjecting the Insurance Entities’ personal residential exposures to statistical testing using a third-party hurricane model, RMS RiskLink v18.1 (Build 1945). This model combines simulations of the natural occurrence patterns and characteristics of hurricanes, tornadoes, earthquakes and other catastrophes with information on property values, construction types and occupancy classes. The model outputs provide information concerning the potential for large losses before they occur, so companies can prepare for their financial impact. Furthermore, as part of our operational excellence initiatives, we continually look to enable new technology to refine our data intelligence on catastrophe risk modeling.
Effective June 1, 2022, the Insurance Entities entered into multiple reinsurance agreements comprising our 2022-2023 reinsurance program. See “Item 1—Note 4 (Reinsurance).”
UPCIC’s 2022-2023 Reinsurance Program
•First event All States retention of $45 million.
•All States first event tower extends to $3.012 billion with no co-participation in any of the layers, no limitation on loss adjustment expenses for the non-catastrophe bond Cosaint Re Pte. Ltd. traditional reinsurance and no accelerated deposit premiums.
•Assuming a first event completely exhausts the $3.012 billion tower, the second event exhaustion point would be $1.183 billion.
•Full reinstatement available on $1.138 billion of the $1.288 billion of non-FHCF first event catastrophe coverage for guaranteed second event coverage. For all layers purchased between $111 million and the projected FHCF retention, to the extent that all of our coverage or a portion thereof is exhausted in a catastrophic event and reinstatement premium is due, we have purchased enough reinstatement premium protection ("RPP") limit to pay the premium necessary for the reinstatement of these coverages.
•First event layer of 100% of $66 million in excess of $45 million established by UIH in captive insurance arrangement. While the Company retains the risk that otherwise would be transferred to third party-reinsurers for this layer, the additional risk is substantially offset by the savings in premiums that would otherwise have been paid to third-party reinsurers.
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•Specific 2 nd event private market excess of loss coverage of $66 million in excess of $45 million sitting behind captive arrangement.
•Specific 3 rd and 4 th event private market catastrophe excess of loss coverage of $86 million in excess of $25 million provides frequency protection for multiple events during the treaty period including a $20 million reduction in retention for a 3 rd and 4 th event.
•For the FHCF Reimbursement Contracts effective June 1, 2022, UPCIC has continued the election of the 90% coverage level. We estimate the total mandatory FHCF layer will provide approximately $1.679 billion of coverage for UPCIC, which inures to the benefit of the open market coverage secured from private reinsurers and Cosaint Re Pte. Ltd.
•To further insulate for future years, UPCIC has secured $383 million of catastrophe capacity with contractually agreed limits that extend coverage to include the 2022 and 2023 wind seasons and $277 million of the $383 million extends through the 2024 wind season and is all capacity which sits below the Florida Hurricane Catastrophe Fund. UPCIC’s catastrophe bond, secured leading up to the 2021-2022 renewal, Cosaint Re Pte. Ltd, continues to provide one limit of $150 million in this year’s program and it may also include the 2023 wind season, depending on loss activity in the 2022 wind season.
Reinsurers
The table below provides the A.M. Best and S&P financial strength ratings for each of the largest rated third-party reinsurers in UPCIC’s 2022-2023 reinsurance program:

Reinsurer |  | A.M. Best |  | S&P
Allianz Risk Transfer AG, Bermuda Branch |  | A+ |  | AA-
Chubb Tempest Reinsurance Ltd. |  | A++ |  | AA
Everest Re |  | A+ |  | A+
Munich Re |  | A+ |  | AA-
Renaissance Re |  | A+ |  | A+
Various Lloyd’s of London Syndicates |  | A |  | A+
Florida Hurricane Catastrophe Fund (1) |  | N/A |  | N/A

(1)No rating is available, because the fund is not rated.
APPCIC’s 2022-2023 Reinsurance Program
•First event All States retention of $3.5 million.
•All States first event tower of $50.5 million with no co-participation in any of the layers, no limitation on loss adjustment expenses and no accelerated deposit premiums.
•Full reinstatement available for all private market first event catastrophe layers for guaranteed second event coverage. For the layer purchased between $3.5 million and the projected FHCF retention, to the extent that all of our coverage or a portion thereof is exhausted in a catastrophic event and reinstatement premium is due, we have purchased enough RPP limit to pay the premium necessary for the reinstatement of this coverage.
•APPCIC also purchases extensive multiple line excess per risk reinsurance with various reinsurers due to the high-value risks it insures in both the personal residential and commercial multiple peril lines of business. Under this multiple line excess per risk contract, APPCIC has coverage of $8.5 million in excess of $500 thousand ultimate net loss for each risk and each property loss, and $1 million in excess of $0.3 million for each casualty loss. A $19.5 million aggregate limit applies to the term of the contract for property-related losses and a $2.0 million aggregate limit applies to the term of the contract for casualty-related losses. This contract also contains a profit-sharing feature if specific performance measures are met.
•For the FHCF Reimbursement Contracts effective June 1, 2022, APPCIC has continued the election of the 90% coverage level. We estimate the total mandatory FHCF layer will provide approximately $24.2 million of coverage for APPCIC, which inures to the benefit of the open market coverage secured from private reinsurers.
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Reinsurers
The table below provides the A.M. Best and S&P financial strength ratings for each of the largest rated third-party reinsurers in APPCIC’s 2022-2023 reinsurance program:

Reinsurer |  | A.M. Best |  | S&P
Chubb Tempest Reinsurance Ltd. |  | A++ |  | AA
DaVinci Reinsurance Limited |  | A |  | A+
Lancashire Insurance Company Limited |  | A |  | A-
Renaissance Reinsurance Ltd. |  | A+ |  | A+
Various Lloyd’s of London Syndicates |  | A |  | A+
Florida Hurricane Catastrophe Fund (1) |  | N/A |  | N/A

(1)No rating is available, because the fund is not rated.
The cost of the 2022-2023 reinsurance programs for UPCIC and APPCIC is projected to be $696 million, representing approximately 37.6% of estimated direct premium earned for the 12-month treaty period for UPCIC and APPCIC.
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RESULTS OF OPERATIONS AND ANALYSIS OF FINANCIAL CONDITION
Highlights for the quarter ended September 30, 2022
•In late September 2022, Hurricane Ian made landfall on the Gulf Coast of Florida, continued across the state into the Atlantic Ocean, and then made a second landfall in South Carolina. Current estimates for UVE’s gross ultimate loss is approximately $1 billion, well below its $3 billion reinsurance tower, with projected net exposure limited to retentions at its insurance and captive insurance entity subsidiaries. Estimated net losses and LAE exposure to the Insurance Entities, after estimated reinsurance recoveries, is $45 million. The Insurance Entities’ reinsurance recoveries include losses and LAE recoveries of $66 million from UVE’s prefunded captive insurance arrangement which is eliminated in consolidation. In total, net losses from Hurricane Ian, including losses and LAE incurred under the funded captive insurance arrangement, is currently estimated to be $111 million. In addition to net retention losses, Hurricane Ian triggered reinstatement premiums and related reinsurance brokerage commissions as well as revenues generated by our claims adjusting affiliate, as discussed further in Results of Operations.
•Previously approved rate filings and inflation adjustments to policy insured values are increasing written and earned premium as the new rates and property insured values take effect on policy renewals and new business, and earn prospectively over the policy period.
•Management is continuing its efforts to prudently manage new business risk selection, improve risk exposure diversification and moderate new business growth rates, compared to prior years, while rate increases are taking effect to improve profitability. Renewal retention rates have declined year over year as consumers react to higher renewal premiums. As a result, the number of total policies in force is decreasing.
•Net investment income increased as market interest rates rise; however, rising interest rates have lowered the market value of our investments, resulting in unrealized losses.
•Losses and LAE, net were higher this quarter compared to the same period last year primarily due to Hurricane Ian, and a higher level of estimated losses and LAE for the current accident year as a result of emerging loss trends which have increased, including higher claim inflation costs in Florida and in our other markets.
•Other operating expense and acquisition cost management efforts have lowered the expense ratio. In April 2021, the commission rate on policy renewals was reduced 2 percentage points and further reduced on May 1, 2022 by another 2 percentage points, in response to premium rate increases during the past year. The benefit of lower commission rates are realized over the next year as policies renew under the lower commission rate structure.
•The Company continued to return shareholder value with quarterly dividends and modest share repurchases.
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Third quarter of fiscal 2022 results of operations comparisons are to third quarter of fiscal 2021 (unless otherwise specified).
Results of Operations — Three Months Ended September 30, 2022 Compared to Three Months Ended September 30, 2021
Net loss for the three months ended September 30, 2022, was $72.3 million due primarily to the impact from Hurricane Ian compared to net income of $20.2 million for the same period in 2021. Benefiting the quarter were increases in premiums earned, net, an increase in net investment income and an increase in commission revenue, offset by a decrease in realized gains, a decrease in policy fees, an increase in unrealized losses and an increase in operating costs and expenses. Direct premium earned and premiums earned, net were up 10.2% and 9.8%, respectively, due to premium growth in the majority of states in which we are licensed and writing during the past 12 months mostly as a result of rate increases implemented during 2021 and 2022. The net loss and LAE ratio was 113.7% for the three months ended September 30, 2022, compared to 70.9% for the same period in 2021 reflecting the impact of Hurricane Ian and higher core losses partially offset by lower prior years’ reserve development. As a result of the above and further explained below, the combined ratio for the three months ended September 30, 2022 was 139.2% compared to 98.5% for the three months ended September 30, 2021. Also see the discussion above under “Overview—Trends.”
A detailed discussion of our results of operations follows the table below (in thousands, except per share data).

| Three Months Ended September 30, |  | Change
| 2022 |  | 2021 |  | $ |  | %
REVENUES |  |  |  |  |  |  |
Direct premiums written | $ | 500,677 |  |  | $ | 432,984 |  |  | $ | 67,693 |  |  | 15.6 | %
Change in unearned premium | (48,227) |  |  | (22,363) |  |  | (25,864) |  |  | 115.7 | %
Direct premium earned | 452,450 |  |  | 410,621 |  |  | 41,829 |  |  | 10.2 | %
Ceded premium earned | (161,819) |  |  | (145,967) |  |  | (15,852) |  |  | 10.9 | %
Premiums earned, net | 290,631 |  |  | 264,654 |  |  | 25,977 |  |  | 9.8 | %
Net investment income | 6,074 |  |  | 2,797 |  |  | 3,277 |  |  | 117.2 | %
Net realized gains (losses) on investments | 292 |  |  | 4,319 |  |  | (4,027) |  |  | (93.2) | %
Net change in unrealized gains (losses) of equity securities | (4,150) |  |  | (3,759) |  |  | (391) |  |  | 10.4 | %
Commission revenue | 12,592 |  |  | 11,418 |  |  | 1,174 |  |  | 10.3 | %
Policy fees | 5,272 |  |  | 5,859 |  |  | (587) |  |  | (10.0) | %
Other revenue | 2,099 |  |  | 1,966 |  |  | 133 |  |  | 6.8 | %
Total revenues | 312,810 |  |  | 287,254 |  |  | 25,556 |  |  | 8.9 | %
OPERATING COSTS AND EXPENSES |  |  |  |  |  |  |
Losses and loss adjustment expenses | 330,444 |  |  | 187,581 |  |  | 142,863 |  |  | 76.2 | %
General and administrative expenses | 73,973 |  |  | 73,180 |  |  | 793 |  |  | 1.1 | %
Total operating costs and expenses | 404,417 |  |  | 260,761 |  |  | 143,656 |  |  | 55.1 | %
Interest and amortization of debt issuance costs | 1,630 |  |  | 29 |  |  | 1,601 |  |  | 5,520.7 | %
INCOME (LOSS) BEFORE INCOME TAXES | (93,237) |  |  | 26,464 |  |  | (119,701) |  |  | NM
Income tax expense (benefit) | (20,962) |  |  | 6,281 |  |  | (27,243) |  |  | NM
NET INCOME (LOSS) | $ | (72,275) |  |  | $ | 20,183 |  |  | $ | (92,458) |  |  | NM
Other comprehensive income (loss), net of taxes | (27,531) |  |  | (1,827) |  |  | (25,704) |  |  | NM
COMPREHENSIVE INCOME (LOSS) | $ | (99,806) |  |  | $ | 18,356 |  |  | $ | (118,162) |  |  | NM
DILUTED EARNINGS (LOSS) PER SHARE DATA: |  |  |  |  |  |  |
Diluted earnings (loss) per common share | $ | (2.36) |  |  | $ | 0.64 |  |  | $ | (3.00) |  |  | NM
Weighted average diluted common shares outstanding | 30,604 |  |  | 31,337 |  |  | (733) |  |  | (2.3) | %
NM – Not Meaningful |  |  |  |  |  |  |

Direct premiums written increased by $67.7 million, or 15.6%, for the quarter ended September 30, 2022, driven by premium growth within our Florida business of $57.8 million, or 16.3%, and premium growth in our other states’ business of $9.9 million, or 12.7%, as compared to the same period of the prior year. Rate increases approved in 2021 and 2022 for Florida and for certain other states, were the principal driver of higher written premiums. In total policies in force declined 70,667, or 7.5%, from
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943,593 at December 31, 2021 to 872,926 at September 30, 2022. A summary of the recent rate increases which are driving increases in written premium are discussed above under “Overview—Trends.”
Rate increases are applied on new business submissions and renewals from the effective date of their renewal and then are earned subsequently over the policy period. The recent rate increases in Florida are in response to rising claim costs driven by higher costs of material and labor associated with claims, the cost of weather events, the rising cost of catastrophe and other reinsurance protecting policyholders and, more importantly, the impact of “social inflation” on claims as claim settlements increasingly have involved inflated demands, representation, and litigation. In addition, the Insurance Entities’ policies provide for coverage limits to be adjusted at renewal based on third-party data sources that monitor factors such as changes in costs for residential building materials and labor.
During 2022, management continued efforts to prudently manage policy counts and exposures intended to slow the growth of exposures relating to new business compared to prior years while the above rate increases are taking effect. Reduced new business writings, declines in renewal retentions during 2022 and the impact of selected policy non-renewals, have resulted in a decrease in policies in force during the quarter of 21,692, or 2.4%, from 894,618 at June 30, 2022 to 872,926 at September 30, 2022. Direct premiums written continue to increase across the majority of states in which we conduct business. As a result of our business strategy, policy premium rate increases, lower renewal retention, fewer new business policies written and disciplined underwriting initiatives, we have seen a decrease in policy count, but an increase in in-force premium and total insured value in a majority of states for the past three years. In total, we wrote policies in 19 states during both of the third quarters of 2022 and 2021. In addition, we are authorized to do business in Tennessee and Wisconsin and are proceeding with product filings in those states. At September 30, 2022, policies in force decreased 94,895 policies, or 9.8%; premium in force increased $183.5 million, or 11.1%; and total insured value increased $5.3 billion, or 1.7%, compared to September 30, 2021.
The following table provides direct premiums written for Florida and Other States for the three months ended September 30, 2022 and 2021 (dollars in thousands):

| For the Three Months Ended |  |  |  |
| September 30, 2022 |  | September 30, 2021 |  | Growth year over year
State | Direct Premiums Written |  | % |  | Direct Premiums Written |  | % |  | $ |  | %
Florida | $ | 412,588 |  |  | 82.4 | % |  | $ | 354,799 |  |  | 81.9 | % |  | $ | 57,789 |  |  | 16.3 | %
Other states | 88,089 |  |  | 17.6 | % |  | 78,185 |  |  | 18.1 | % |  | 9,904 |  |  | 12.7 | %
Total | $ | 500,677 |  |  | 100.0 | % |  | $ | 432,984 |  |  | 100.0 | % |  | $ | 67,693 |  |  | 15.6 | %

We seek to prudently grow and generate long-term rate adequate premium in each state where we offer policies. Our diversification strategy seeks to increase business outside of Florida and to improve geographical distribution within Florida. Premium growth outside Florida is a measure monitored by management in its efforts to meet that objective.
Direct premium earned increased by $41.8 million, or 10.2%, for the quarter ended September 30, 2022, reflecting the earning of premiums written over the past 12 months including the benefit of rate changes due to primary rate filings, filings to cover increased reinsurance costs as well as policy premium adjustments due to increases in insured values caused by inflation.
Reinsurance enables our Insurance Entities to limit potential exposures to catastrophic events and other covered events. Ceded premium represents premiums paid to reinsurers for this protection and is a cost which reduces net written and net earned premiums. Hurricane Ian triggered reinstatement premiums, increasing ceded premiums written by $24.6 million which will be earned prospectively effective September 28, 2022 to May 31, 2023, increasing ceded premiums earned for the quarter by $307 thousand. In total, ceded premiums earned increased $15.9 million, or 10.9%, for the quarter ended September 30, 2022, as compared to the same period of the prior year. The increase in reinsurance costs reflects an increase in the value of exposures we insure; increased pricing when compared to the expired reinsurance program; and differences in the structure and design of the respective programs. Reinsurance costs, as a percentage of direct premium earned, increased from 35.5% for the three months ended September 30, 2021 to 35.8% for the three months ended September 30, 2022. Reinsurance costs associated with each year’s reinsurance program are earned over the annual policy period which typically runs from June 1 st to May 31 st. See the discussion above for the Insurance Entities’ 2022-2023 reinsurance programs and “Item 1—Note 4 (Reinsurance).”
Premiums earned, net of ceded premium earned, grew by 9.8%, or $26.0 million, to $290.6 million for the three months ended September 30, 2022, reflecting an increase in direct premium earned partially offset by increased costs for reinsurance.
Net investment income was $6.1 million for the three months ended September 30, 2022, compared to $2.8 million for the same period in 2021, an increase of $3.3 million, or 117.2%. In the fourth quarter of 2021, we saw increases in investment yields as the Federal Reserve took action to address the market concerns of inflation and employment. As a result, liquidity generated by our portfolio from interest payments, principal repayments and new investments are being invested at higher rates, resulting in overall increased investment returns on our portfolio.
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Total invested assets were $1.08 billion as of September 30, 2022 compared to $1.09 billion as of December 31, 2021. The decrease is attributable to increases in unrealized losses. Unrealized losses reverse over time as debt instruments are generally held to maturity. Cash and cash equivalents were $307.4 million at September 30, 2022 compared to $250.5 million at December 31, 2021, an increase of 22.7%. This increase is largely attributable to cash calls to reinsurers to support Hurricane Ian claim settlement liquidity and changes in operational cash flows since year end. Cash and cash equivalents are invested short term until needed to settle loss and LAE payments, reinsurance premium payments and operating cash needs or until they are deployed by our investment advisors.
Yields from cash and cash equivalents, short-term investments and the available-for-sale debt portfolio are dependent on the composition of the portfolio, future market forces, monetary policy and interest rate policy from the Federal Reserve. During most of 2021, the Federal Reserve broadly maintained lower interest rates, which impacted the effective yields on newly purchased available-for-sale debt securities and overnight cash purchases and short-term investments. This overall trend changed in late 2021 and into 2022 as inflation worries began to impact the financial markets, including the markets’ concern over future Federal Reserve actions of rate hikes and other actions to address inflation concerns. As a result, we saw increased yields on securities purchased in late 2021 and 2022 and increased unrealized losses on our portfolio, reflected after-tax in the equity section of our balance sheet as increased market yields negatively impacted the fair value on much of our available-for-sale debt securities.
Although we generally hold the vast majority of debt securities to maturity, we sell investments, including securities, from our investment portfolio from time to time to meet our investment objectives or take advantage of market opportunities. During the three months ended September 30, 2022, sales of available-for-sale debt securities resulted in net realized losses of $0.2 million and sales of equity securities resulted in net realized gains of $0.5 million, generating total net realized gains of $0.3 million during the third quarter of 2022. During the three months ended September 30, 2021, sales of available-for-sale debt securities resulted in net realized gain of $0.7 million, sales of equity securities resulted in net realized gains of $1.3 million, and the sale of an investment real estate property which was classified as assets held for sale in the first quarter of 2021 resulted in a realized gain of $2.3 million, thereby generating total net realized gains of $4.3 million during the third quarter of 2021. See “Item 1—Note 3 (Investments).”
There was a $4.2 million net unrealized loss in equity securities during the three months ended September 30, 2022, largely driven by macro inflationary pressures and the uncertain recessionary outlook, which put pressure on domestic equities broadly, compared to a $3.8 million net unrealized loss in equity securities during the three months ended September 30, 2021. Net change in unrealized gains or losses reflected on the income statement are the result of changes in the fair market value of our equity securities during the period for securities still held at the end of the reported period and the reversal of unrealized gains or losses for securities sold during the period. See “Item 1—Note 3 (Investments).”
Commission revenue is comprised principally of brokerage commissions we earn from third-party reinsurers (excluding the FHCF) on reinsurance placed for the Insurance Entities. Commission revenue is earned pro-rata over the reinsurance policy period which runs from June 1 st to May 31 st of the following year. Reinstatement premiums for Hurricane Ian resulted in $13.1 million of additional brokerage commissions which will be earned prospectively from September 28, 2022 to May 31, 2023, increasing brokerage commission revenue earned of $160 thousand for the quarter. In total, for the three months ended September 30, 2022, commission revenue was $12.6 million, compared to $11.4 million for the three months ended September 30, 2021. The increase in commission revenue of $1.2 million, or 10.3%, for the three months ended September 30, 2022 was primarily due to increased commissions from third-party reinsurers earned on increased reinsurance premiums which is attributable to growth in our insured values for this year’s reinsurance program as well as the difference in pricing and structure associated with our reinsurance program when compared to the prior year.
Policy fees were $5.3 million for the three months ended September 30, 2022 compared to $5.9 million for the same period in 2021. The decrease of $0.6 million, or 10.0%, was the result of a decrease in the number of new and renewal policies written during the three months ended September 30, 2022 compared to the same period in 2021 in states where we are permitted to charge this fee.
Other revenue, representing revenue from policy installment fees, premium financing and other miscellaneous income, was $2.1 million for the three months ended September 30, 2022 compared to $2.0 million for the same period in 2021.
Core revenue, representing total GAAP revenue, excluding net realized gains (losses) on investments and net changes in unrealized gains (losses) of equity securities, was $316.7 million for the three months ended September 30, 2022 compared to $286.7 million for the same period in 2021.
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The following table presents losses and LAE incurred on a direct, ceded and net basis expressed in dollars and as a percent of the respective amounts of premiums earned. These amounts are further categorized as i) core losses, ii) weather events for the current accident year and iii) prior years’ reserve development (dollars in thousands):

| Three Months Ended September 30, 2022
| Direct |  | Loss Ratio |  | Ceded |  | Loss Ratio |  | Net |  | Loss Ratio
Premiums earned | $ | 452,450 |  |  |  |  | $ | 161,819 |  |  |  |  | $ | 290,631 |  |  |
Loss and loss adjustment expenses: |  |  |  |  |  |  |  |  |  |  |
Core losses | $ | 216,784 |  |  | 47.9 | % |  | $ | 55 |  |  | — | % |  | $ | 216,729 |  |  | 74.6 | %
Weather events* | 1,026,200 |  |  | 226.8 | % |  | 915,200 |  |  | 565.6 | % |  | 111,000 |  |  | 38.2 | %
Prior years’ reserve development | 26,360 |  |  | 5.9 | % |  | 23,645 |  |  | 14.6 | % |  | 2,715 |  |  | 0.9 | %
Total losses and loss adjustment expenses | $ | 1,269,344 |  |  | 280.6 | % |  | $ | 938,900 |  |  | 580.2 | % |  | $ | 330,444 |  |  | 113.7 | %
*Includes only current year weather events beyond those expected.

| Three Months Ended September 30, 2021
| Direct |  | Loss Ratio |  | Ceded |  | Loss Ratio |  | Net |  | Loss Ratio
Premiums earned | $ | 410,621 |  |  |  |  | $ | 145,967 |  |  |  |  | $ | 264,654 |  |  |
Loss and loss adjustment expenses: |  |  |  |  |  |  |  |  |  |  |
Core losses | $ | 176,161 |  |  | 42.9 | % |  | $ | 69 |  |  | — | % |  | $ | 176,092 |  |  | 66.5 | %
Weather events* | — |  |  | — | % |  | — |  |  | — | % |  | — |  |  | — | %
Prior years’ reserve development | 87,907 |  |  | 21.4 | % |  | 76,418 |  |  | 52.4 | % |  | 11,489 |  |  | 4.4 | %
Total losses and loss adjustment expenses | $ | 264,068 |  |  | 64.3 | % |  | $ | 76,487 |  |  | 52.4 | % |  | $ | 187,581 |  |  | 70.9 | %
*Includes only current year weather events beyond those expected.

See “Item 1—Note 6 (Liability for Unpaid Losses and Loss Adjustment Expenses)” for change in liability for unpaid losses and LAE.
Management looks at losses and LAE in three areas, as described below and represented in the tables above, each of which has different drivers that impact reported results. As a result, these components of losses and LAE are described separately. Overall losses and LAE, net of reinsurance recoveries, were $330.4 million resulting in a 113.7% net loss and LAE ratio for the quarter ended September 30, 2022. This compares to $187.6 million resulting in a 70.9% net loss and LAE ratio for the quarter ended September 30, 2021.
The Company continues to monitor and adjust its estimate of expected losses and has increased its current accident year loss estimates and increased estimates associated with prior years’ claims. Over the past three years, even as we have increased our estimates of prospective losses each year, we have recorded adverse claim development on prior years’ loss reserves and further strengthened current year losses during the year to address the increasing impact of Florida’s market disruptions, as well as the impact of inflation from building material costs and labor costs on the reserving and claim settlement process. The full extent and duration of these market disruptions and inflationary pressures are unknown and still unfolding, and we continue to monitor the impact of such disruptions on the recording and reporting of claim costs. See the discussion above for the Insurance Entities’ 2022-2023 reinsurance programs and “Item 1 - Note 4 (Reinsurance).” Also see the discussion above under “Overview—Trends.”
The factors impacting losses and LAE are as follows:
•Core losses
◦Our core losses consist of all losses and LAE for the current accident year excluding both weather events for the current year beyond those anticipated in our regular accrual process and prior years’ reserve development. Core losses were 47.9% of direct premium earned for the quarter ended September 30, 2022 compared to 42.9% for the same period in 2021. During the quarter ended September 30, 2022 management increased the core loss ratio by approximately one loss ratio point retroactive to January 1, 2022, with the cumulative impact being recorded in the quarter, as a result of worsening trends in overall weather not associated with named storms and in response to changes in estimated losses caused by deteriorating loss trends and higher repair costs as a result of material and labor inflation. The trend in core losses and LAE is increasing year over year as the claims environment in Florida continues to deteriorate and inflation continues to drive repair costs up. Also see the
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discussion above under “Overview—Trends.” Core losses also increase as premium volume increases year over year.
•Weather events beyond those expected
◦During the quarter ended September 30, 2022, Hurricane Ian resulted in direct losses of $1.026 billion. Estimated net losses and LAE exposure to the Insurance Entities, after estimated reinsurance recoveries, is $45 million. The Insurance Entities’ reinsurance recoveries include losses and LAE recoveries of $66.0 million from UVE’s prefunded captive insurance arrangement which is eliminated in consolidation. In total, net losses from Hurricane Ian including losses and LAE incurred under the funded captive insurance arrangement, is currently estimated to be $111.0 million.
◦There were no other weather events beyond those expected during the quarter ended September 30, 2021.
•Prior years’ reserve development
◦Two drivers influence the amounts recorded as prior years’ reserve development, namely: (i) changes to prior estimates of direct and net ultimate losses on prior accident years excluding major hurricanes and (ii) changes to prior estimates of direct and net ultimate losses on hurricanes.
▪During the quarter ended September 30, 2022, prior years’ reserve development totaled $26.4 million of direct losses and $2.7 million of net unfavorable loss development after the benefit of reinsurance.
•Prior year adverse development includes gross reserve development on Hurricane Irma of $26.4 million, of which $23.7 million was ceded, resulting in net unfavorable loss development on Hurricane Irma of $2.7 million in the quarter.
•Excluding hurricanes, there was no prior years’ reserve development for the quarter ended September 30, 2022.
▪For the quarter ended September 30, 2021, direct prior years’ reserve development of $87.9 million, less $76.4 million ceded, resulted in $11.5 million net unfavorable loss development after the benefit of reinsurance.
•For hurricanes, prior years’ reserve development for the quarter ended September 30, 2021 was the result of a direct increase in the ultimate losses of $81.7 million offset by ceded hurricane losses of $76.4 million resulting in net unfavorable development of $5.3 million. Direct losses increased for Hurricanes Irma and Sally.
•Excluding hurricanes, there was $6.2 million of direct and net prior years’ reserve development for the quarter ended September 30, 2021. This development, primarily from 2019 and prior accident years, resulted from the settlement on litigated claims exceeding prior estimated amounts.
The financial benefit generated by our claims adjusting affiliate from the management of claims, including claim fees ceded by our Insurance Entities to reinsurers, was a benefit of $5.0 million for the three months ended September 30, 2022, compared to a benefit of $3.7 million during the three months ended September 30, 2021, driven by the recoveries from reinsurers and internal claim services. The increase for the current quarter is the result of claim activity on Hurricane Ian. The impact was recorded in the condensed consolidated financial statements as a reduction to losses and LAE.
For the three months ended September 30, 2022, general and administrative expenses were $74.0 million compared to $73.2 million during the same period in 2021, as follows (dollars in thousands):

| Three Months Ended |  |  |  |
| September 30, |  | Change
| 2022 |  | 2021 |  | $ |  | %
| $ |  | Ratio |  | $ |  | Ratio |  |  |  |
Premiums earned, net | $ | 290,631 |  |  |  |  | $ | 264,654 |  |  |  |  | $ | 25,977 |  |  | 9.8 | %
General and administrative expenses: |  |  |  |  |  |  |  |  |  |  |
Policy acquisition costs | 54,609 |  |  | 18.8 | % |  | 57,062 |  |  | 21.5 | % |  | (2,453) |  |  | (4.3) | %
Other operating costs | 19,364 |  |  | 6.7 | % |  | 16,118 |  |  | 6.1 | % |  | 3,246 |  |  | 20.1 | %
Total general and administrative expenses | $ | 73,973 |  |  | 25.5 | % |  | $ | 73,180 |  |  | 27.6 | % |  | $ | 793 |  |  | 1.1 | %

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General and administrative expenses increased by $0.8 million, which was the result of an increase in other operating costs of $3.2 million.offset by a decrease in policy acquisition costs of $2.4 million. The total general and administrative expense ratio was 25.5% for the three months ended September 30, 2022 compared to 27.6% for the same period in 2021.
•The increase of other operating costs of $3.2 million was primarily higher performance bonus expenses, slightly offset by lower stock-based compensation and policy related expenses. In the prior year quarter, the performance bonus accrual was reduced, resulting in negative expense for performance bonus of $2.7 million for the three months ended September 30, 2021. As a result, the comparison to the current year’s accrual for performance bonus expense reflects an increase of $3.3 million compared to the same period in 2021. The other operating cost ratio was 6.7% for the three months ended September 30, 2022, compared to 6.1% for the same period in 2021. This increase in the operating cost ratio reflects several factors including the timing of adjustments to accruals relating to annual expenses such as bonuses and other discretionary expenditures.
•The decrease in policy acquisition costs of $2.4 million reflects a reduction in the commission rate paid to agents on the renewal of Florida policies, which was reduced by two percentage points to 8% effective May 1, 2022, which will benefit future periods as the new rate structure applies prospectively. The decrease in policy acquisition costs as a percentage of premiums earned, net during the quarter is primarily due to the reduction in commissions paid to agents.
As a result of the above, the combined ratio for the third quarter ended September 30, 2022 was 139.2% compared to 98.5% for the same period in 2021. The increase was the result of the impact of Hurricane Ian and higher core losses.
Interest and amortization of debt issuance costs increased by $1.6 million for the three months ended September 30, 2022. The increase in interest and amortization of debt issuance costs is the result of an increase in the outstanding debt as a result of our fourth quarter of 2021 borrowing. See “Item 1—Note 7 (Long-term debt)” for additional details.
Income tax benefit was $21.0 million for the quarter ended September 30, 2022 compared to an income tax expense of $6.3 million for the quarter ended September 30, 2021. Our effective tax rate (“ETR”) decreased to 22.5% for the three months ended September 30, 2022, as compared to 23.7% for the three months ended September 30, 2021. The ETR decreased as a result of a higher ratio of permanent items relative to the amount of loss before taxes, principally non-deductible compensation, and a lower level of discrete tax benefits. As a result of Hurricane Ian, the state tax benefit was reduced in the third quarter of 2022 due to the VIE’s absence of a state tax deduction. See “Item 1—Note 9 (Income Tax)” and “—Note 14 (Variable Interest Entities)” for additional details.
Other comprehensive loss, net of taxes for the three months ended September 30, 2022, was $27.5 million compared to other comprehensive loss of $1.8 million for the same period in 2021, reflecting after-tax changes in fair value of available-for-sale debt securities held in our investment portfolio and reclassifications out of accumulated other comprehensive income for available-for-sale debt securities sold. We saw increased market yields on securities purchased in late 2021 and 2022 and increased unrealized losses on our portfolio, reflected after-tax in the equity section of our balance sheet as increased market yields negatively impacted the fair value on much of our available-for-sale debt securities. See the discussion above and “Item 1—Note 11 (Other Comprehensive Income (Loss))” for additional information about the amounts comprising other comprehensive income (loss), net of taxes for these periods.
Adjusted operating income (loss) represents GAAP operating income (loss), excluding net realized gains (losses) on investment and net changes in unrealized gains (losses) of equity securities. Adjusted operating loss was $87.7 million for the three months ended September 30, 2022 compared to adjusted operating income of $25.9 million for the same period in 2021.
Adjusted operating income (loss) margin, represents adjusted operating income (loss) divided by core revenue. Adjusted operating loss margin was 27.7% for the three months ended September 30, 2022 compared to adjusted operating income of 9.0% for the same period in 2021.
Adjusted net income (loss) attributable to common stockholders represents GAAP net income (loss) attributable to common stockholders, excluding net realized gains (losses) on investment and net changes in unrealized gains (losses) of equity securities, net of tax. Adjusted net loss attributable to common stockholders was $69.4 million for the three months ended September 30, 2022 compared to adjusted net income attributable to common stockholders of $19.8 million for the same period in 2021.
Diluted adjusted earnings (loss) per common share represents adjusted net income (loss) available to common stockholders divided by weighted average diluted common shares outstanding. Diluted adjusted loss per common share was $2.27 for the three months ended September 30, 2022 compared to diluted adjusted earnings per common share of $0.63 for the same period in 2021.
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All comparisons for the nine months ended September 30, 2022 results of operations are to the corresponding prior year period (unless otherwise specified).
Results of Operations — Nine Months Ended September 30, 2022 Compared to Nine Months Ended September 30, 2021
Net loss was $47.4 million for the nine months ended September 30, 2022 due primarily to the impact from Hurricane Ian compared to $68.5 million in net income for the nine months ended September 30, 2021. Benefiting the nine months ended September 30, 2022 were increases in premiums earned, net, an increase in net investment income. and an increase in commission revenue, partially offset by an increase in unrealized losses, a decrease in realized gains, and a decrease in revenue from policy fees, and an increase in operating costs and expenses. Direct premium earned and premiums earned, net were up 9.9% and 9.5%, respectively, due to premium growth in the majority of states in which we are licensed and writing during the past 12 months as a result of rate increases implemented during 2021 and 2022, partially offset by higher costs for reinsurance flowing through to premiums earned, net. The net loss and LAE ratio was 85.5% for the nine months ended September 30, 2022, compared to 65.3% for the same period in 2021 reflecting the impact of Hurricane Ian, higher core net losses and an increase in excess other weather events beyond those expected partially offset by lower prior years’ reserve development. As a result of the above and as further explained below, the combined ratio for the nine months ended September 30, 2022 was 113.2% compared to 96.4% for the nine months ended September 30, 2021. See “Overview - Trends.”
A detailed discussion of our results of operations follows the table below (in thousands, except per share data).

| Nine Months Ended September 30, |  | Change
| 2022 |  | 2021 |  | $ |  | %
REVENUES |  |  |  |  |  |  |
Direct premiums written | $ | 1,429,685 |  |  | $ | 1,271,925 |  |  | $ | 157,760 |  |  | 12.4 | %
Change in unearned premium | (133,827) |  |  | (93,124) |  |  | (40,703) |  |  | 43.7 | %
Direct premium earned | 1,295,858 |  |  | 1,178,801 |  |  | 117,057 |  |  | 9.9 | %
Ceded premium earned | (459,102) |  |  | (414,670) |  |  | (44,432) |  |  | 10.7 | %
Premiums earned, net | 836,756 |  |  | 764,131 |  |  | 72,625 |  |  | 9.5 | %
Net investment income | 15,337 |  |  | 8,641 |  |  | 6,696 |  |  | 77.5 | %
Net realized gains (losses) on investments | (375) |  |  | 5,357 |  |  | (5,732) |  |  | NM
Net change in unrealized gains (losses) of equity securities | (16,430) |  |  | (3,024) |  |  | (13,406) |  |  | 443.3 | %
Commission revenue | 35,157 |  |  | 30,404 |  |  | 4,753 |  |  | 15.6 | %
Policy fees | 15,991 |  |  | 17,821 |  |  | (1,830) |  |  | (10.3) | %
Other revenue | 5,862 |  |  | 5,862 |  |  | — |  |  | — | %
Total revenues | 892,298 |  |  | 829,192 |  |  | 63,106 |  |  | 7.6 | %
OPERATING COSTS AND EXPENSES |  |  |  |  |  |  |
Losses and loss adjustment expenses | 715,854 |  |  | 498,765 |  |  | 217,089 |  |  | 43.5 | %
General and administrative expenses | 231,561 |  |  | 237,469 |  |  | (5,908) |  |  | (2.5) | %
Total operating costs and expenses | 947,415 |  |  | 736,234 |  |  | 211,181 |  |  | 28.7 | %
Interest and amortization of debt issuance costs | 4,969 |  |  | 84 |  |  | 4,885 |  |  | 5815.5 | %
INCOME (LOSS) BEFORE INCOME TAXES | (60,086) |  |  | 92,874 |  |  | (152,960) |  |  | NM
Income tax expense (benefit) | (12,718) |  |  | 24,342 |  |  | (37,060) |  |  | NM
NET INCOME (LOSS) | $ | (47,368) |  |  | $ | 68,532 |  |  | $ | (115,900) |  |  | NM
Other comprehensive income (loss), net of taxes | (100,097) |  |  | (10,741) |  |  | (89,356) |  |  | NM
COMPREHENSIVE INCOME (LOSS) | $ | (147,465) |  |  | $ | 57,791 |  |  | $ | (205,256) |  |  | NM
DILUTED EARNINGS (LOSS) PER SHARE DATA: |  |  |  |  |  |  |
Diluted earnings (loss) per common share | $ | (1.54) |  |  | $ | 2.19 |  |  | $ | (3.73) |  |  | NM
Weighted average diluted common shares outstanding | 30,858 |  |  | 31,302 |  |  | (444) |  |  | (1.4) | %
NM – Not Meaningful |  |  |  |  |  |  |

Direct premiums written increased by $157.8 million, or 12.4%, for the nine months ended September 30, 2022, driven by premium growth within our Florida business of $138.0 million, or 13.0%, and premium growth in our other states business of $19.8 million, or 9.4%, as compared to the same period of the prior year. Rate increases approved in 2021 and 2022 for Florida and for certain other states were the principal driver of higher written premiums. In total, policies in force declined 70,667, or
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7.5%, from 943,593 at December 31, 2021 to 872,926 at September 30, 2022. A summary of the recent rate increases which are driving increases in written premium is discussed above under “Overview—Trends.”
Rate increases are applied on new business submissions and renewals from the effective date of their renewal, and then are earned subsequently over the policy period. The recent rate increases in Florida are in response to rising claim costs driven by higher costs of material and labor associated with claims, the cost of weather events, the rising cost of catastrophe and other reinsurance protecting policyholders and, more importantly, the impact of “social inflation” on claims as claim settlements increasingly have involved inflated demands, representation, and litigation. In addition, the Insurance Entities’ policies provide for coverage limits to be adjusted at renewal based on third-party data sources that monitor factors such as changes in costs for residential building materials and labor.
During 2022, management continued efforts to prudently manage policy counts and exposures intended to slow the growth of exposures relating to new business compared to prior years while the above rate increases are taking effect. Reduced new business writings, declines in renewal retentions in 2022 and the impact of selected policy non-renewals have resulted in a decrease in policies in force of 70,667, or 7.5%, during 2022 from 943,593 at December 31, 2021 to 872,926 at September 30, 2022. Direct premiums written continue to increase across the majority of states in which we conduct business. As a result of our business strategy, rate changes and disciplined underwriting initiatives, we have seen a decrease in policy count, but an increase in in-force premium and total insured value in a majority of states for the past three years. We actively wrote policies in 19 states during 2021 and 2022. In addition, we are authorized to do business in Tennessee and Wisconsin and are proceeding with product filings in those states. At September 30, 2022, policies in force decreased 94,895 policies, or 9.8%, premium in force increased $183.5 million, or 11.1%, and total insured value increased $5.3 billion, or 1.7%, compared to September 30, 2021.
The following table provides direct premiums written for Florida and Other States for the nine months ended September 30, 2022 and 2021 (dollars in thousands):

| For the Nine Months Ended |  |  |  |
| September 30, 2022 |  | September 30, 2021 |  | Growth year over year
State | Direct Premiums Written |  | % |  | Direct Premiums Written |  | % |  | $ |  | %
Florida | $ | 1,200,193 |  |  | 83.9 | % |  | $ | 1,062,180 |  |  | 83.5 | % |  | $ | 138,013 |  |  | 13.0 | %
Other states | 229,492 |  |  | 16.1 | % |  | 209,745 |  |  | 16.5 | % |  | 19,747 |  |  | 9.4 | %
Total | $ | 1,429,685 |  |  | 100.0 | % |  | $ | 1,271,925 |  |  | 100.0 | % |  | $ | 157,760 |  |  | 12.4 | %

We seek to prudently grow and generate long-term rate adequate premium in each state where we offer policies. Our diversification strategy seeks to increase business outside of Florida and to improve geographical distribution within Florida. Premium growth outside Florida is a measure monitored by management in its efforts to meet that objective.
Direct premium earned increased by $117.1 million, or 9.9%, for the nine months ended September 30, 2022, reflecting the earning of premiums written over the past 12 months including the benefit of rate changes due to primary rate filings, filings to cover increased reinsurance costs as well as policy premium adjustments due to increases in insured values caused by inflation.
Reinsurance enables our Insurance Entities to limit potential exposures to catastrophic events and other covered events. Ceded premium represents premiums paid to reinsurers for this protection and is a cost which reduces net written and net earned premiums. Hurricane Ian triggered reinstatement premiums, increasing ceded premiums written by $24.6 million which will be earned prospectively effective September 28, 2022 to May 31, 2023, increasing ceded premiums earned for the quarter by $307 thousand. In total, ceded premium earned increased $44.4 million, or 10.7%, for the nine months ended September 30, 2022 as compared to the same period of the prior year. The increase in reinsurance costs reflects an increase in the value of exposures we insure; increased pricing when compared to the expired reinsurance program and differences in the structure and design of the respective programs. Reinsurance costs as a percentage of direct premium earned increased from 35.2% in 2021 to 35.4% in 2022. Reinsurance costs associated with each year’s reinsurance program are earned over the annual policy period which typically runs from June 1 st to May 31 st. See the discussion above for the Insurance Entities’ 2022-2023 reinsurance programs and “Item 1— Note 4 (Reinsurance).”
Premiums earned, net of ceded premium earned, grew by 9.5%, or $72.6 million, to $836.8 million for the nine months ended September 30, 2022, reflecting an increase in direct premium earned offset by increased costs for reinsurance.
Net investment income was $15.3 million for the nine months ended September 30, 2022, compared to $8.6 million for the same period in 2021, an increase of $6.7 million, or 77.5%. In the fourth quarter of 2021, we saw increases in investment yields as the Federal Reserve took action to address the market concerns of inflation and employment. As a result, liquidity generated by our portfolio from interest payments, principal repayments and new investments are being invested at higher rates, resulting in overall increased investment returns on our portfolio.
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Total invested assets were $1.08 billion as of September 30, 2022 compared to $1.09 billion million as of December 31, 2021. The decrease is attributable to increases in unrealized losses. Unrealized losses reverse over time as debt instruments are generally held to maturity. Cash and cash equivalents were $307.4 million at September 30, 2022 compared to $250.5 million at December 31, 2021, an increase of 22.7%. This increase is largely attributable to cash calls to reinsurers to support Ian claim settlement liquidity and changes in operational cash flows since year end. Cash and cash equivalents are invested short term until needed to settle loss and LAE payments, reinsurance premium payments and operating cash needs or until they are deployed by our investment advisors.
Yields from cash and cash equivalents, short-term investments and the available-for-sale debt portfolio are dependent on the composition of the portfolio, future market forces, monetary policy and interest rate policy from the Federal Reserve. During most of 2021, the Federal Reserve broadly maintained lower interest rates, which impacted the effective yields on newly purchased available-for-sale debt securities and overnight cash purchases and short-term investments. This overall trend changed in late 2021 and into 2022 as inflation worries began to impact the financial markets, including the markets’ concern over future Federal Reserve actions of rate hikes and other actions to address inflation concerns. As a result, we saw increased yields on securities purchased in late 2021 and 2022 and increased unrealized losses on our portfolio reflected after-tax in the equity section of our balance sheet as increased market yields negatively impacted the fair value of much of our available-for-sale debt securities.
We sell investments, including securities, from our investment portfolio from time to time to meet our investment objectives or take advantage of market opportunities. During the nine months ended September 30, 2022, sales of available-for-sale debt securities resulted in net realized losses of $1.4 million and sales of equity securities resulted in net realized gains of $1.0 million, generating total net realized losses of $0.4 million. During the nine months ended September 30, 2021, sales of available-for-sale debt securities resulted in net realized gains of $0.3 million, sales of equity securities resulted in net realized gains of $2.4 million, and the sale of two investment real estate property which included one classified as assets held for sale in the first nine months of 2021, resulted in a realized gain of $2.7 million, in total generating net realized gains of $5.4 million. See “Item 1—Note 3 (Investments).”
There was a $16.4 million net unrealized loss in equity securities during the nine months ended September 30, 2022 compared to a $3.0 million net unrealized loss in equity securities during the nine months ended September 30, 2021. Net change in unrealized gains or losses reflected on the income statement are the result of changes in the fair market value of our equity securities during the period for securities still held at the end of the reported period and the reversal of unrealized gains or losses for securities sold during the period. See “Item 1—Note 3 (Investments).”
Commission revenue is comprised principally of brokerage commissions we earn from third-party reinsurers (excluding the FHCF) on reinsurance placed for the Insurance Entities. Commission revenue is earned pro-rata over the reinsurance policy period which runs from June 1 st to May 31 st of the following year. Reinstatement premiums for Hurricane Ian resulted in $13.1 million of additional brokerage commissions which will be earned prospectively from September 28, 2022 to May 31, 2023, increasing brokerage commission revenue earned of $160 thousand for the quarter. For the nine months ended September 30, 2022, commission revenue was $35.2 million, compared to $30.4 million for the nine months ended September 30, 2021. The increase in commission revenue of $4.8 million, or 15.6%, for the nine months ended September 30, 2022 was primarily due to increased commissions from third-party reinsurers earned on increased reinsurance premiums which is attributable to growth in our insured values as well as the difference in pricing and structure associated with our reinsurance program when compared to the prior year.
Policy fees for the nine months ended September 30, 2022 were $16.0 million compared to $17.8 million for the same period in 2021. The decrease of $1.8 million, or 10.3%, was the result of a decrease in the combined total number of new and renewal policies written during the nine months ended September 30, 2022 compared to the same period in 2021 in states where we are permitted to charge this fee.
Other revenue, representing revenue from policy installment fees, premium financing and other miscellaneous income for the nine months ended September 30, 2022 was relatively flat when compared to the same period in 2021.
Core revenue, representing total GAAP revenue, excluding net realized gains (losses) on investments and net changes in unrealized gains (losses) of equity securities, was $909.1 million for the nine months ended September 30, 2022 compared to $826.9 million for the same period in 2021.
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The following table presents losses and LAE incurred on a direct, ceded and net basis expressed in dollars and as a percent of the respective amounts of premiums earned. These amounts are further categorized as i) core losses, ii) weather events for the current accident year and iii) prior years’ reserve development (dollars in thousands):

| Nine Months Ended September 30, 2022
| Direct |  | Loss Ratio |  | Ceded |  | Loss Ratio |  | Net |  | Loss Ratio
Premiums earned | $ | 1,295,858 |  |  |  |  | $ | 459,102 |  |  |  |  | $ | 836,756 |  |  |
Loss and loss adjustment expenses: |  |  |  |  |  |  |  |  |  |  |
Core losses | $ | 593,364 |  |  | 45.8 | % |  | $ | 135 |  |  | — | % |  | $ | 593,229 |  |  | 70.9 | %
Weather events* | 1,030,745 |  |  | 79.5 | % |  | 915,200 |  |  | 199.3 | % |  | 115,545 |  |  | 13.8 | %
Prior years’ reserve development | 100,620 |  |  | 7.8 | % |  | 93,540 |  |  | 20.4 | % |  | 7,080 |  |  | 0.8 | %
Total losses and loss adjustment expenses | $ | 1,724,729 |  |  | 133.1 | % |  | $ | 1,008,875 |  |  | 219.7 | % |  | $ | 715,854 |  |  | 85.5 | %
*Includes only current year weather events beyond those expected.

| Nine Months Ended September 30, 2021
| Direct |  | Loss Ratio |  | Ceded |  | Loss Ratio |  | Net |  | Loss Ratio
Premiums earned | $ | 1,178,801 |  |  |  |  | $ | 414,670 |  |  |  |  | $ | 764,131 |  |  |
Loss and loss adjustment expenses: |  |  |  |  |  |  |  |  |  |  |
Core losses | $ | 480,801 |  |  | 40.8 | % |  | $ | 19 |  |  | — | % |  | $ | 480,782 |  |  | 62.9 | %
Weather events* | — |  |  | — | % |  | — |  |  | — | % |  | — |  |  | — | %
Prior years’ reserve development | 296,867 |  |  | 25.2 | % |  | 278,884 |  |  | 67.3 | % |  | 17,983 |  |  | 2.4 | %
Total losses and loss adjustment expenses | $ | 777,668 |  |  | 66.0 | % |  | $ | 278,903 |  |  | 67.3 | % |  | $ | 498,765 |  |  | 65.3 | %
*Includes only current year weather events beyond those expected.

See “Item 1—Note 6 (Liability for Unpaid Losses and Loss Adjustment Expenses)” for change in liability for unpaid losses and LAE.
Management looks at losses and LAE in three areas, as described below and represented in the tables above, each of which has different drivers that impact reported results. As a result, these components of losses and LAE are described separately. Overall losses and LAE, net of reinsurance recoveries, were $715.9 million resulting in an 85.5% net loss and LAE ratio for the nine months ended September 30, 2022. This compares to $498.8 million resulting in a 65.3% net loss and LAE ratio for the nine months ended September 30, 2021.
The Company continues to monitor and adjust its estimate of expected losses and has increased its current year loss estimates and increased estimates associated with prior years’ claims. Over the past three years, even as we have increased our estimates of prospective losses each year, we have recorded adverse claim development on prior years’ loss reserves and further strengthened current year losses during the year to address the increasing impact of Florida’s market disruptions, as well as the impact that inflation from building material costs and labor costs has on the reserving and claim settlement process. The full extent and duration of these market disruptions and inflationary pressures are unknown and still unfolding, and we continue to monitor the impact of such disruptions on the recording and reporting of claim costs. See the discussion above for the Insurance Entities’ 2022-2023 reinsurance programs and “Item 1 - Note 4 (Reinsurance).” Also see the discussion above under “Overview—Trends.”
The factors impacting losses and LAE are as follows:
•Core losses
◦Our core losses consist of all losses and LAE for the current accident year excluding both weather events for the current year beyond those anticipated in our regular accrual process and prior years’ reserve development. Core losses were 45.8% of direct premium earned for the nine months ended September 30, 2022 compared to 40.8% for the same period in 2021. During the quarter ended September 30, 2022, management increased the core loss ratio by approximately one loss ratio point retroactive to January 1, 2022, with the cumulative impact being recorded in the quarter. This was done in response to worsening weather experience during the quarter. Management elected to address this through an increase in the current accident year loss pick rather than record specific weather events given the overall trends in recent years for weather not associated with named storms and in response to changes in estimated losses caused by deteriorating loss trends and higher repair costs as a result of material and labor inflation. The trend in core losses and LAE is increasing year over year as the claims environment in Florida continues to deteriorate and inflation continues to drive repair costs up. Also see the
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discussion above under “Overview—Trends.” Core losses also increase as premium volume increases year over year.
•Weather events beyond those expected
◦During the nine months ended September 30, 2022, Hurricane Ian resulted in direct losses of $1.026 billion. Estimated net losses and LAE exposure to the Insurance Entities, after estimated reinsurance recoveries, is $45.0 million. The Insurance Entities reinsurance recoveries include losses and LAE recoveries of $66.0 million from UVE’s prefunded captive insurance arrangement which is eliminated in consolidation. In total, net losses from Hurricane Ian including losses and LAE incurred under the funded captive insurance arrangement, is currently estimated to be $111.0 million. During the nine months ended September 30, 2022, in addition to the impact of Hurricane Ian, there were $4.5 million of other weather events beyond those expected.
◦There were no weather events beyond those expected during the nine months ended September 30, 2021.
•Prior years’ reserve development
◦Two drivers influence the amounts recorded as prior years’ reserve development, namely: (i) changes to prior estimates of direct and net ultimate losses on prior accident years excluding major hurricanes and (ii) changes to prior estimates of direct and net ultimate losses on hurricanes.
▪During the nine months ended September 30, 2022, prior years’ reserve development totaled $100.6 million of direct losses and $7.1 million of net unfavorable loss development after the benefit of reinsurance.
•For hurricanes, prior years’ reserve development for the nine months ended September 30, 2022 was the result of a direct increase in the ultimate losses for several hurricanes of $100.6 million offset by ceded hurricane losses of $93.5 million resulting in net unfavorable development of $7.1 million. Direct losses increased for Hurricanes Irma, Sally, Michael and Matthew. Prior year adverse development includes gross reserve development on Hurricane Irma of $76.2 million, of which $69.2 million was ceded, resulting in net development on Hurricane Irma of $7.0 million in the period. Additionally, the Company concluded a favorable commutation during the quarter, increasing ceded prior year loss payments which was offset by a provisory increase in direct prior year IBNR amount, resulting in no net effect. Hurricane Matthew direct and net losses increased $0.1 million.
•Excluding hurricanes, there was no direct and net prior years’ reserve development for the nine months ended September 30, 2022.
▪For the nine months ended September 30, 2021, prior years’ reserve development totaled $296.9 million of direct losses and $18.0 million of net unfavorable loss development after the benefit of reinsurance.
•For hurricanes, prior years’ reserve development for the nine months ended September 30, 2021 was the result of a direct increase in the ultimate losses for several hurricanes of $282.9 million offset by ceded hurricane losses of $278.9 million resulting in net unfavorable development of $4.0 million. Direct losses increased for Hurricanes Irma, Sally, Michael and Matthew.
•Excluding hurricanes, there was $14.0 million of direct and net prior years’ reserve development for the nine months ended September 30, 2021. This development, primarily from the 2019 and prior accident years, resulted from the settlement on litigated claims exceeding prior estimated amounts.
The financial benefit generated by our claims adjusting affiliate from the management of claims, including claim fees ceded by our Insurance Entities to reinsurers, was a benefit of $6.9 million for the nine months ended September 30, 2022, compared to $13.0 million during the nine months ended September 30, 2021, driven by the recoveries from reinsurers and internal claim services. The amount recorded in the current quarter is the result of claim activity on Hurricane Ian. The benefit was recorded in the condensed consolidated financial statements as a reduction to losses and LAE.
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General and administrative expenses were $231.6 million for the nine months ended September 30, 2022, compared to $237.5 million during the same period in 2021, as follows (dollars in thousands):

| Nine Months Ended |  |  |  |
| September 30, |  | Change
| 2022 |  | 2021 |  | $ |  | %
| $ |  | Ratio |  | $ |  | Ratio |  |  |  |
Premiums earned, net | $ | 836,756 |  |  |  |  | $ | 764,131 |  |  |  |  | $ | 72,625 |  |  | 9.5 | %
General and administrative expenses: |  |  |  |  |  |  |  |  |  |  |
Policy acquisition costs | 163,432 |  |  | 19.5 | % |  | 170,287 |  |  | 22.3 | % |  | (6,855) |  |  | (4.0) | %
Other operating costs | 68,129 |  |  | 8.2 | % |  | 67,182 |  |  | 8.8 | % |  | 947 |  |  | 1.4 | %
Total general and administrative expenses | $ | 231,561 |  |  | 27.7 | % |  | $ | 237,469 |  |  | 31.1 | % |  | $ | (5,908) |  |  | (2.5) | %

General and administrative expenses decreased by $5.9 million, which was the result of a decrease in policy acquisition costs of $6.9 million offset by an increase in other operating costs of $1.0 million. The total general and administrative expense ratio was 27.7% for the nine months ended September 30, 2022 compared to 31.1% for the nine months ended September 30, 2021.
•The decrease in policy acquisition costs of $6.9 million reflects a reduction in the commission rate paid to agents on the renewal of Florida policies which was reduced by two percentage points to 10% effective April 1, 2021. The commission rate paid to agents on the renewal of Florida policies was reduced by an additional two percentage points to 8% effective May 1, 2022, which will benefit future periods as the new rate structure applies prospectively. The decrease in policy acquisition costs as a percentage of premiums earned, net during the period is primarily due to the reduction in commissions paid to agents.
•The increase in other operating costs of $1.0 million primarily reflects an increase in performance bonus accruals partially offset by a decrease in stock based compensation and policy costs. The other operating cost ratio was 8.2% for the nine months ended September 30, 2022 compared to 8.8% in the nine months ended September 30, 2021. This reduction reflects several factors including economies of scale as we continue to grow premium, and efficiencies gained from leveraging technology, and spending discipline.
As a result of the above, the combined ratio for the nine months ended September 30, 2022 was 113.2% compared to 96.4% for the same period in 2021. The increase was the result of the impact of Hurricane Ian and higher core losses.
Interest and amortization of debt issuance costs increased by $4.9 million for the nine months ended September 30, 2022. The increase in interest and amortization of debt issuance costs is the result of an increase in the outstanding debt as a result of our fourth quarter of 2021 borrowing. See “Item 1—Note 7 (Long-term debt)” for additional details.
Income tax benefit was $12.7 million for the nine months ended September 30, 2022, compared to income tax expense of $24.3 million for the nine months ended September 30, 2021. Our ETR decreased to 21.2% for the nine months ended September 30, 2022, as compared to 26.2% for the nine months ended September 30, 2021. The ETR decreased as a result of a lower ratio of permanent items relative to the amount of loss before taxes, principally non-deductible compensation, and a higher level of discrete tax benefits. As a result of Hurricane Ian, the state tax benefit was reduced in Q3 2022 due to the VIE’s absence of a state tax deduction. See “Item 1—Note 9 (Income Tax)” and “—Note 14 (Variable Interest Entities)” for additional details.
Other comprehensive loss, net of taxes for the nine months ended September 30, 2022, was $100.1 million compared to other comprehensive loss of $10.7 million for the same period in 2021, reflecting after-tax changes in fair value of available-for-sale debt securities held in our investment portfolio and reclassifications out of accumulated other comprehensive income for available-for-sale debt securities sold. We saw increased market yields on securities purchased in late 2021 and 2022 and increased unrealized losses on our portfolio, reflected after-tax in the equity section of our balance sheet as increased market yields negatively impacted the fair value on much of our available-for-sale debt securities. See see discussion above and “Item 1—Note 11 (Other Comprehensive Income (Loss))” for additional information about the amounts comprising other comprehensive income (loss), net of taxes for these periods.
Adjusted operating income (loss) represents GAAP operating income (loss), excluding net realized gains (losses) on investment and net changes in unrealized gains (losses) of equity securities. Adjusted operating loss as $38.3 million for the nine months ended September 30, 2022 compared to adjusted operating income of $90.6 million for the same period in 2021.
Adjusted operating income (loss) margin represents adjusted operating income (loss) divided by core revenue. Adjusted operating loss was 4.2% for the nine months ended September 30, 2022 compared to adjusted operating income of 11.0% for the same period in 2021.
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Adjusted net income (loss) attributable to common stockholders represents GAAP net income (loss) attributable to common stockholders, excluding net realized gains (losses) on investment and net changes in unrealized gains (losses) of equity securities, net of tax. Adjusted net loss attributable to common stockholders was $34.7 million for the nine months ended September 30, 2022 compared to adjusted net income attributable to common stockholders of $66.7 million for the same period in 2021.
Diluted adjusted earnings (loss) per common share represents adjusted net income (loss) available to common stockholders divided by weighted average diluted common shares outstanding. Diluted adjusted loss per common share was $1.12 for the nine months ended September 30, 2022 compared to diluted adjusted earnings per share of $2.13 for the same period in 2021.
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Analysis of Financial Condition—As of September 30, 2022 Compared to December 31, 2021
We believe that cash flows generated from operations will be sufficient to meet our working capital requirements for at least the next twelve months. We invest amounts considered to be in excess of current working capital requirements.
The following table summarizes, by type, the carrying values of investments as of the dates presented (in thousands):

| As of
| September 30, |  | December 31,
Type of Investment | 2022 |  | 2021
Available-for-sale debt securities | $ | 996,783 |  |  | $ | 1,040,455 |
Equity securities | 82,387 |  |  | 47,334 |
Investment real estate, net | 5,752 |  |  | 5,891 |
Total | $ | 1,084,922 |  |  | $ | 1,093,680 |

See “Item 1—Condensed Consolidated Statements of Cash Flows” and “Item 1—Note 3 (Investments)” for explanations on changes in investments.
Prepaid reinsurance premiums represent the portion of unearned ceded written premium that will be earned pro-rata over the coverage period of our reinsurance program, which runs from June 1 st to May 31 st of the following year. The increase of $211.2 million to $452.2 million as of September 30, 2022 was primarily due to additional ceded written premium reinsurance costs relating to our new 2022-2023 catastrophe reinsurance program beginning June 1, 2022, less amortization of ceded written premium for the reinsurance costs earned since the beginning of the program.
Reinsurance recoverable represents the estimated amount of paid and unpaid losses, LAE and other expenses that are expected to be recovered from reinsurers. The increase of $750.2 million to $935.8 million as of September 30, 2022 was primarily due to Hurricane Ian covered by our reinsurance contracts and amounts received in connection with a commutation received by UPCIC in the second quarter of 2022.
Premiums receivable, net, represents amounts receivable from policyholders. The increase in premiums receivable, net of $14.7 million to $79.6 million as of September 30, 2022 relates to consumer payment behavior of our business. The amount of direct premiums written during a calendar year tends to increase just prior to the second quarter and tends to decrease approaching the fourth quarter.
Deferred policy acquisition costs (“DPAC”) increased by $3.0 million to $111.9 million as of September 30, 2022, which is consistent with the seasonal premium trends of written premium. In addition DPAC was impacted by the reduction to Florida renewal commissions implemented during 2022 and 2021 and other changes to the Company’s commission structure. See “Item 1—Note 5 (Insurance Operations)” for a roll-forward in the balance of our DPAC.
Income taxes recoverable represents the difference between estimated tax obligations and tax payments made to taxing authorities. As of September 30, 2022, the balance recoverable was $32.8 million, representing amounts due from taxing authorities at that date, compared to a balance recoverable of $16.9 million as of December 31, 2021. Income taxes recoverable as of September 30, 2022 will either be refunded or applied to future periods to offset future federal and state income tax obligations.
Deferred income taxes represent the estimated tax asset or tax liability caused by temporary differences between the tax return basis of certain assets and liabilities and amounts recorded in the financial statements. For the nine months ended September 30, 2022, deferred tax assets increased by $33.3 million to $49.7 million primarily due to an increase in unrealized losses on investments. Deferred income taxes reverse in future years as the temporary differences between book and tax reverse.
Other assets decreased by $5.0 million to $17.1 million as of September 30, 2022, which was primarily attributable to receivables relating to sales of our securities from our investment portfolio that settled after December 31, 2021.
See “Item 1—Note 6 (Liability for Unpaid Losses and Loss Adjustment Expenses)” for a roll-forward in the balance of our unpaid losses and LAE. Unpaid losses and LAE increased by $807.4 million to $1,153.6 million as of September 30, 2022. The majority of the increase in 2022 was a result of losses recorded in the third quarter of 2022 for Hurricane Ian. Overall, unpaid losses and LAE increased, as new emerging claims exceeded settlements. Unpaid losses and LAE are net of estimated subrogation recoveries.
Unearned premiums represent the portion of direct premiums written that will be earned pro-rata in the future. The increase of $133.8 million from December 31, 2021 to $991.6 million as of September 30, 2022 reflects the seasonality of our business, which varies from month to month.
Advance premium represents premium payments made by policyholders ahead of the effective date of the policies. The increase of $24.6 million to $78.3 million as of September 30, 2022 reflects customer payment behavior and the payment behavior of mortgage escrow service providers.
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We maintain a short-term cash investment strategy sweep to maximize investment returns on cash balances. Book overdraft totaled $3.1 million as of September 30, 2022 compared to book overdraft totaling $26.8 million as of December 31, 2021. The decrease of $23.7 million is the result of higher cash balances available for offset as of September 30, 2022 compared to December 31, 2021. See “—Liquidity and Capital Resources” for more information.
Reinsurance payable, net, represents the unpaid reinsurance premium installments owed to reinsurers, unpaid reinstatement premiums due to reinsurers and cash advances received from reinsurers, if any. On June 1 st of each year, we renew our core catastrophe reinsurance program and record the estimated annual cost of our reinsurance program. These estimated annual costs are increased or decreased during the year based on premium adjustments or as a result of new placements during the year. The annual cost initially increases reinsurance payable, which is then reduced as installment payments are made over the policy period of the reinsurance, which typically runs from June 1 st to May 31 st. The balance increased by $270.2 million to $458.9 million as of September 30, 2022 as a result of the timing of the above items. See “—Liquidity and Capital Resources” for more information about timing of reinsurance premium installment payments.
Other liabilities and accrued expenses increased by $28.7 million to $56.1 million as of September 30, 2022, primarily driven from an increase in other liabilities due to the timing of payments and payables relating to purchases of securities for our investment portfolio that settled after September 30, 2022.
Capital resources, net, decreased by $169.8 million for the nine months ended September 30, 2022, reflecting a net decrease in total stockholders’ equity and long-term debt. The change in stockholders’ equity was principally the result of our 2022 net loss, declines in the after-tax changes in the fair value of our available-for-sale debt securities, treasury share purchases and dividends to shareholders offset by increases from share-based compensation. Available-for-sale debt securities’ decline in fair value of $132.8 million (before tax) through the third quarter of 2022, caused the net unrealized loss position of $20.2 million at December 31, 2021 to increase to $153.0 million at September 30, 2022. Current market outlooks are signaling further Federal Reserve tightening which could continue to have a negative impact on the valuation of available-for-sale debt securities. See “Item 1—Condensed Consolidated Statements of Stockholders’ Equity” and “Item 1—Note 8 (Stockholders’ Equity)” for explanation of changes in treasury stock.
The reduction in debt of $1.1 million was the result of principal payments on debt during 2022. See “—Liquidity and Capital Resources” for more information.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity
Liquidity is a measure of a company’s ability to generate sufficient cash flows to meet its short and long-term obligations. Funds generated from operations have been sufficient and we expect them to be sufficient to meet our current and long term liquidity requirements.
The balance of cash and cash equivalents, excluding restricted cash, as of September 30, 2022 was $307.4 million, compared to $250.5 million at December 31, 2021. See “Item 1—Condensed Consolidated Statements of Cash Flows” for a reconciliation of the balance of cash and cash equivalents between September 30, 2022 and December 31, 2021. This increase is largely attributable to cash calls to reinsurers to support Hurricane Ian claim settlement liquidity and changes in operational cash flows since year end and was driven by cash flows generated from operating activities in excess of cash flows used in investing and financing activities. Our cash investment strategy at times includes cash investments where the right of offset against other bank accounts does not exist. A book overdraft occurs when aggregating the book balance of all accounts at a financial institution, for accounts which have the right of offset, and if the aggregation results in a net negative book balance, that balance is reclassified from cash and cash equivalents in our Condensed Consolidated Balance Sheet to book overdraft. Cash and cash equivalents balances are available to settle book overdrafts, and to pay reinsurance premiums, expenses and claims. Reinsurance premiums are paid in installments during the reinsurance policy period, which runs from June 1 st to May 31 st of the following year. The FHCF reimbursement premiums are paid in three installments on August 1 st, October 1 st, and December 1 st, and third-party reinsurance premiums are generally paid in four installments on July 1 st, October 1 st, January 1 st and April 1 st, resulting in significant payments at those times. See “Item 1—Note 12 (Commitments and Contingencies)” and additional discussion below under the caption “—Material Cash Requirements” for more information.
The balance of restricted cash and cash equivalents as of September 30, 2022 and December 31, 2021 represents cash equivalents on deposit with certain regulatory agencies in the various states in which our Insurance Entities do business.
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Liquidity is required at the holding company for us to cover the payment of holding company general operating expenses and contingencies, dividends to shareholders (if and when authorized and declared by our Board of Directors), payment for the possible repurchase of our common stock (if and when authorized by our Board of Directors), payment of our tax obligations to taxing authorities, settlement of taxes between subsidiaries in accordance with our tax sharing agreement, capital contributions to subsidiaries or surplus note contributions to the Insurance Entities, if needed, and interest and principal payments on outstanding debt obligations of the holding company. Effective in 2021 for UPCIC and 2022 for APPCIC, the holding company has put in place an ongoing surplus note arrangement with the Insurance Entities, which has been approved by the Florida Office of Insurance Regulation as the Insurance Entities’ domestic regulator. Surplus notes are unsecured debt issued by the Insurance Entities that are subordinated to all claims by policyholders and creditors, with interest and principal payments on the surplus notes to the holding company being made only upon the FLOIR’s express approval. Surplus notes are considered bonds in function and payout structure, but are accounted for as equity in the statutory reporting of the Insurance Entities. The holding company has outstanding with the Insurance Entities $134.0 million in surplus notes. Under the arrangement, interest accrues at a variable rate (currently 8.27%) on the outstanding surplus note balances and, if approved by the FLOIR, is payable annually to the holding company. In 2022, UPCIC received approval from its Florida regulator to permit UPCIC to pay interest accruing from surplus notes outstanding during 2021. The declaration and payment of future dividends to our shareholders, and any future repurchases of our common stock, will be at the discretion of our Board of Directors and will depend upon many factors, including our operating results, financial condition, debt covenants and any regulatory constraints. New regulations or changes to existing regulations imposed on the Company and its affiliates may also impact the amount and timing of future dividend payments to the parent. Principal sources of liquidity for the holding company include dividends paid by our service entities generated from income earned on fees paid by the Insurance Entities to affiliated companies for general agency, inspections and claims adjusting services. Dividends are also paid from income earned from brokerage commissions earned on reinsurance contracts placed by our wholly-owned subsidiary, Blue Atlantic Reinsurance Corporation, and policy fees. We also maintain high quality investments in our portfolio as a source of liquidity along with ongoing interest and dividend income from those investments. As discussed in “Item 1—Note 5 (Insurance Operations),” there are limitations on the dividends the Insurance Entities may pay to their immediate parent company, Protection Solutions, Inc. (“PSI”, formerly known as Universal Insurance Holding Company of Florida).
The maximum amount of dividends that can be paid by Florida insurance companies without prior approval of the FLOIR is subject to restrictions as referenced below and in “Item 1—Note 5 (Insurance Operations).” Dividends from the Insurance Entities can only be paid from accumulated unassigned funds derived from net operating profits and net realized capital gains. Subject to such accumulated unassigned funds, the maximum dividend that may be paid by the Insurance Entities to PSI without prior approval (an “ordinary dividend”) is further limited to the lesser of statutory net income from operations of the preceding calendar year or statutory unassigned surplus as of the preceding year end. During the nine months ended September 30, 2022 and the year ended December 31, 2021, the Insurance Entities did not pay dividends to PSI. As of September 30, 2022, the Insurance Entities did not have the capacity to pay ordinary dividends.
In November 2021, we issued $100 million of 5.625% Senior Unsecured Notes due 2026. We are using the net proceeds to support the Insurance Entities’ statutory capital requirements and for general corporate purposes. If necessary, the Company also has amounts available under our unsecured revolving loan as discussed in “Item 1—Note 7 (Long-term debt).”
Liquidity for the Insurance Entities is primarily required to cover payments for reinsurance premiums, claims payments including potential payments of catastrophe losses (offset by recovery of any reimbursement amounts under our reinsurance agreements), fees paid to affiliates for managing general agency services, inspections and claims adjusting services, agent commissions, premium and income taxes, regulatory assessments, general operating expenses, and interest and principal payments on debt obligations. The principal source of liquidity for the Insurance Entities consists of the revenue generated from the collection of premiums earned, net, interest and dividend income from the investment portfolio, the collection of reinsurance recoverable and financing fees.
Our insurance operations provide liquidity as premiums are generally received months or even years before potential losses are paid under the policies written. In the event of catastrophic events, many of our reinsurance agreements provide for “cash advance” whereby reinsurers advance or prepay amounts to us, thereby providing liquidity, which we utilize in the claim settlement process. In addition, the Insurance Entities maintain substantial investments in highly liquid, marketable securities, which would generate funds upon sale. The average credit rating on our available-for-sale securities was A+ as of September 30, 2022 and December 31, 2021. Credit ratings are a measure of collection risk on invested assets. Credit ratings are provided by third party, nationally recognized rating agencies and are periodically updated. Management establishes guidelines for minimum credit rating and overall credit rating for all investments. The duration of our available-for-sale securities was 4.2 years at September 30, 2022 compared to 4.4 years at December 31, 2021. Duration is a measure of a bond’s sensitivity to interest rate changes and is used by management to limit the potential impact of longer-term investments.
The Insurance Entities are responsible for losses related to catastrophic events in excess of coverage provided by the Insurance Entities’ reinsurance programs and retentions before our reinsurance protection commences. Also, the Insurance Entities are responsible for all other losses that otherwise may not be covered by the reinsurance programs and any amounts arising in the event of a reinsurer default. Losses or a default by reinsurers may have a material adverse effect on either of the Insurance Entities, on our business, financial condition, results of operations and liquidity.
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Capital Resources
Capital resources provide protection for policyholders, furnish the financial strength to support the business of underwriting insurance risks and facilitate continued business growth. The following table provides our stockholders’ equity, total long-term debt, total capital resources, debt-to-total capital ratio and debt-to-equity ratio for the periods presented (dollars in thousands):

| As of
| September 30, |  | December 31,
| 2022 |  | 2021
Stockholders’ equity | $ | 260,637 |  |  | $ | 429,702 |
Total long-term debt | 102,968 |  |  | 103,676 |
Total capital resources | $ | 363,605 |  |  | $ | 533,378 |
Debt-to-total capital ratio | 28.3 | % |  | 19.4 | %
Debt-to-equity ratio | 39.5 | % |  | 24.1 | %

The debt-to-total capital ratio is total long-term debt divided by total capital resources, whereas the debt-to-equity ratio is total long-term debt divided by stockholders’ equity. These ratios help management measure the amount of financing leverage in place in relation to equity and future leverage capacity.
Adjusted common stockholders’ equity, representing GAAP common stockholders' equity, excluding accumulated other comprehensive income (loss), was $376.2 million as of September 30, 2022, $501.6 million as of September 30, 2021 and $445.2 million as of December 31, 2021.
Adjusted book value per share common share, representing adjusted common stockholders’ equity divided by outstanding common shares at the end of the reporting period, was $12.33 as of September 30, 2022, $16.09 as of September 30, 2021 and $14.26 as of December 31, 2021.
Adjusted return on common equity representing actual or annualized adjusted net income (loss) attributable to common stockholders divided by average adjusted common stockholders' equity, with the denominator excluding current period income statement net realized gains (losses) on investments and net changes in unrealized gains (losses) of equity securities, net of tax, was 11.1% as of September 30, 2022, 18.8% as of September 30, 2021 and 4.3% as of December 31, 2021.
As described in our Annual Report on Form 10-K for the year ended December 31, 2021, UPCIC entered into a surplus note with the State Board of Administration of Florida under Florida’s Insurance Capital Build-Up Incentive Program on November 9, 2006. The surplus note has a twenty-year term, with quarterly payments of principal and interest that accrue per the terms of the note agreement. At September 30, 2022, UPCIC was in compliance with the terms of the surplus note. Total adjusted capital and surplus, which includes the surplus note, was in excess of regulatory requirements for both UPCIC and APPCIC.
As discussed in “Item 1—Note 7 (Long-term Debt),” the Company entered into a 364-day credit agreement and related revolving loan (“2021 Revolving Loan”) with JPMorgan Chase Bank, N.A. (“JPMorgan”) in August 2021. The Company and JPMorgan subsequently agreed during the term of the 2021 Revolving Loan to extend its expiration date until October 31, 2022. As discussed in “Item 1—Note 15 (Subsequent Event),” the Company renewed this agreement on October 31, 2022, increasing the credit facility to $37.5 million and modifying other terms. The October 31, 2022 Revolving Loan agreement (“2022 Revolving Loan”) makes available to the Company an unsecured revolving credit facility with an aggregate commitment not to exceed $37.5 million (previously $35.0 million) and carries an interest rate of prime rate plus a margin of 2%. The Company must pay an annual commitment of 0.50% of the unused portion of the commitment. Borrowings under the 2022 Revolving Loan mature on October 30, 2023, 364 days after the inception date of the 2022 Revolving Loan. The 2022 Revolving Loan is subject to annual renewals. The 2022 Revolving Loan contains customary financial and other covenants, with which the Company is in compliance. The Company did not borrow any amount under the 2021 Revolving Loan, and as of October 31, 2022, the Company has not borrowed any amount under the 2022 Revolving Loan.
In November 2021, we issued and sold $100 million of 5.625% Senior Unsecured Notes due 2026 (the “Notes”) to certain institutional accredited investors and qualified institutional buyers. The Notes mature on November 26, 2026, at which time the entire $100 million of principal is due and payable. At any time on or after November 23, 2023, the Company may redeem all or part of the Notes. See “Item 1—Note 7 (Long-term debt)” for additional details. As of September 30, 2022, we were in compliance with all applicable covenants.
We will also continue to evaluate opportunities to access the debt capital markets to raise additional capital. We anticipate any proceeds would be used for general corporate purposes, including investing in the capital and surplus of the Insurance Entities.
In addition to the liquidity generally provided from operations, we maintain a conservative, well-diversified investment portfolio, predominantly comprised of fixed income securities with an average credit rating of A+, that focuses on capital preservation and providing an adequate source of liquidity for potential claim payments and other cash needs. The portfolio’s secondary investment objective is to provide a total rate of return with emphasis on investment income. Historically, we have consistently generated funds from operations, allowing our cash and invested assets to grow.
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Impact of the COVID-19 Pandemic
The impact of the COVID-19 pandemic on the economy and credit markets remains a key risk as the United States and the world continue to navigate its consequences and the efforts taken by governments to address financial recovery and economic stability. We remain in regular contact with our advisors to monitor the credit quality of the issuers of the securities in our portfolio and discuss appropriate responses to credit downgrades or changes in companies’ credit outlook. We believe these measures, when combined with the inherent liquidity generated by our business model and in our investment portfolio, will allow us to continue to meet our short- and long-term obligations.
Looking Forward
We continue to monitor a range of financial metrics related to our business. Although we have not experienced material adverse impacts on our business or liquidity, conditions are subject to change depending on the extent of the economic downturn and the pace and extent of an economic recovery. Significant uncertainties exist with the potential long-term impact of the COVID-19 pandemic, including unforeseen newly emerging risks that could affect us and future economic changes as the Federal Reserve addresses the economic concerns of inflation, employment and recession. We will continue to monitor the broader economic impacts of the COVID-19 pandemic.
Common Stock Repurchases
On November 3, 2020, we announced that our Board of Directors authorized a share repurchase program under which we may repurchase in the open market up to $20 million of outstanding shares of our common stock through November 3, 2022. We may repurchase shares from time to time at our discretion, based on ongoing assessments of our capital needs, the market price of our common stock and general market conditions. We will fund the share repurchase program with cash from operations.
During the nine months ended September 30, 2022, we repurchased an aggregate of 806,324 shares of our common stock in the open market at an aggregate purchase price of $9.8 million. Also, see “Part II, Item 2—Unregistered Sales of Equity Securities and Use of Proceeds” for share repurchase activity during the three months ended September 30, 2022.
Off-Balance Sheet Arrangements
The Company does not have any off-balance sheet arrangements that are reasonably likely to have a material effect on the financial condition, results of operations, liquidity, or capital resources of the Company, except for multi-year reinsurance contract commitments for future years that will be recorded at the commencement of the coverage period. See “Item 1—Note 12 (Commitments and Contingencies)” for more information.
Cash Dividends
The following table summarizes the dividends declared by the Company in 2022:

2022 |  | Dividend Declared Date |  | Shareholders Record Date |  | Dividend Payable Date |  | Cash Dividend Per Common Share Amount
First Quarter |  | February 10, 2022 |  | March 10, 2022 |  | March 17, 2022 |  | $ | 0.16 |
Second Quarter |  | April 20, 2022 |  | May 13, 2022 |  | May 20, 2022 |  | $ | 0.16 |
Third Quarter |  | July 19, 2022 |  | August 2, 2022 |  | August 9, 2022 |  | $ | 0.16 |

MATERIAL CASH REQUIREMENTS
The following table represents our material cash requirements for which cash flows are fixed or determinable as of September 30, 2022 (in thousands):

| Total |  | Next 12 Months |  | Beyond 12 Months |  |  |  |
Reinsurance payable and multi-year commitments (1) | $ | 788,268 |  |  | $ | 518,920 |  |  | $ | 269,348 |  |  |  |  |
Unpaid losses and LAE, direct (2) | 1,153,627 |  |  | 650,645 |  |  | 502,982 |  |  |  |  |
Long-term debt (3) | 131,582 |  |  | 7,261 |  |  | 124,321 |  |  |  |  |
Total material cash requirements | $ | 2,073,477 |  |  | $ | 1,176,826 |  |  | $ | 896,651 |  |  |  |  |

(1)Amount represents the payment of reinsurance premiums payable under multi-year commitments. See “Item 1—Note 12 (Commitments and Contingencies).”
(2)There are generally no notional or stated amounts related to unpaid losses and LAE. Both the amounts and timing of future loss and LAE payments are estimates and subject to the inherent variability of legal and market conditions affecting the obligations and make the timing of cash outflows uncertain. The ultimate amount and timing of unpaid losses and LAE could differ materially from the amounts in the table above. Further, the unpaid losses and LAE do not represent all the obligations that will arise under the contracts, but rather only the estimated liability incurred through September 30, 2022. Unpaid losses and LAE are net of estimated subrogation recoveries. In addition, these balances exclude amounts recoverable from the Company’s reinsurance program. See “Item 1—Note 4 (Reinsurance).”
(3)Long-term debt consists of a Surplus note and 5.625% Senior unsecured notes. See “Item 1—Note 7 (Long-term debt).”
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IMPACT OF INFLATION AND CHANGING PRICES
The financial statements and related data presented herein have been prepared in accordance with GAAP, which require the measurement of financial position and operating results in terms of historical dollars without considering changes in the relative purchasing power of money over time due to inflation. Our primary assets are monetary in nature. As a result, interest rates have a more significant impact on our performance than the effects of the general levels of inflation. Interest rates do not necessarily move in the same direction or with the same magnitude as the cost of paying losses and LAE.
Insurance premiums are established before we know the amount of loss and LAE and the extent to which inflation may affect such expenses. Consequently, we attempt to anticipate the future impact of inflation when establishing rate levels. While we attempt to charge adequate rates, we may be limited in raising premium levels for competitive and regulatory reasons. Inflation also affects the market value of our investment portfolio and the investment rate of return. Any future economic changes which result in prolonged and increasing levels of inflation could cause increases in the dollar amount of incurred loss and LAE and thereby materially adversely affect future liability requirements.
ARRANGEMENTS WITH VARIABLE INTEREST ENTITIES
We entered into a reinsurance captive arrangement with a VIE in the normal course of business, and consolidated the VIE since we are the primary beneficiary.
For a further discussion of our involvement with the VIE, see “Item 1—Note 14 (Variable Interest Entities).”
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
There have been no material changes during the period covered by this Quarterly Report on Form 10-Q to Critical Accounting Policies and Estimates previously disclosed in “Part II, Item 7—Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our Annual Report on Form 10-K for the year ended December 31, 2021.
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NON-GAAP FINANCIAL MEASURES
Non-GAAP financial measures should be considered in addition to, and not as a substitute for or superior to, financial measures presented in accordance with GAAP. For more information regarding our key performance indicators, please refer to the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Key Performance Indicators.”
The following table presents the reconciliation of GAAP revenue to core revenue, which is a non-GAAP measure (in thousands):

| Three Months Ended September 30, |  | Nine Months Ended September 30,
| 2022 |  | 2021 |  | 2022 |  | 2021
GAAP revenue | $ | 312,810 |  |  | $ | 287,254 |  |  | $ | 892,298 |  |  | 829,192 |
less: Net realized gains (losses) on investments | 292 |  |  | 4,319 |  |  | (375) |  |  | 5,357 |
less: Net change in unrealized gains (losses) of equity securities | (4,150) |  |  | (3,759) |  |  | (16,430) |  |  | (3,024) |
Core Revenue | $ | 316,668 |  |  | $ | 286,694 |  |  | $ | 909,103 |  |  | $ | 826,859 |

The following table presents the reconciliation of GAAP income (loss) before income taxes to adjusted operating income (loss), which is a non-GAAP measure (in thousands):

| Three Months Ended September 30, |  | Nine Months Ended September 30,
| 2022 |  | 2021 |  | 2022 |  | 2021
GAAP income (loss) before income taxes | $ | (93,237) |  |  | $ | 26,464 |  |  | $ | (60,086) |  |  | $ | 92,874 |
add: Interest and amortization of debt issuance costs | 1,630 |  |  | 29 |  |  | 4,969 |  |  | 84 |
GAAP operating income (loss) | (91,607) |  |  | 26,493 |  |  | (55,117) |  |  | 92,958 |
less: Net realized gains (losses) on investments | 292 |  |  | 4,319 |  |  | (375) |  |  | 5,357 |
less: Net changes in unrealized gains (losses) of equity securities | (4,150) |  |  | (3,759) |  |  | (16,430) |  |  | (3,024) |
Adjusted operating income (loss) | $ | (87,749) |  |  | $ | 25,933 |  |  | $ | (38,312) |  |  | $ | 90,625 |

The following table presents the reconciliation of GAAP operating income (loss) margin to adjusted operating income (loss) margin, which is a non-GAAP measure (in thousands):

| Three Months Ended September 30, |  | Nine Months Ended September 30,
| 2022 |  | 2021 |  | 2022 |  | 2021
GAAP operating income (loss) | $ | (91,607) |  |  | $ | 26,493 |  |  | $ | (55,117) |  |  | $ | 92,958 |
GAAP revenue | 312,810 |  |  | 287,254 |  |  | 892,298 |  |  | 829,192 |
GAAP operating income (loss) margin | (29.3) | % |  | 9.2 | % |  | (6.2) | % |  | 11.2 | %
Adjusted operating income (loss) | (87,749) |  |  | 25,933 |  |  | (38,312) |  |  | 90,625 |
Core revenue | 316,668 |  |  | 286,694 |  |  | 909,103 |  |  | 826,859 |
Adjusted operating income (loss) margin | (27.7) | % |  | 9.0 | % |  | (4.2) | % |  | 11.0 | %

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The following table presents the reconciliation of GAAP net income (loss) available to common stockholders to adjusted net income (loss) available to common stockholders, which is a non-GAAP measure (in thousands):

| Three Months Ended September 30, |  | Nine Months Ended September 30,
| 2022 |  | 2021 |  | 2022 |  | 2021
GAAP net income (loss) | $ | (72,275) |  |  | $ | 20,183 |  |  | $ | (47,368) |  |  | $ | 68,532 |
less: Preferred dividends | 3 |  |  | 3 |  |  | 8 |  |  | 8 |
GAAP net income (loss) available to common stockholders | (72,278) |  |  | 20,180 |  |  | (47,376) |  |  | 68,524 |
less: Net realized gains (losses) on investments | 292 |  |  | 4,319 |  |  | (375) |  |  | 5,357 |
less: Net changes in unrealized gains (losses) of equity securities | (4,150) |  |  | (3,759) |  |  | (16,430) |  |  | (3,024) |
add: Income tax effect on above adjustments | (949) |  |  | 131 |  |  | (4,134) |  |  | 545 |
Adjusted net income (loss) available to common stockholders | $ | (69,369) |  |  | $ | 19,751 |  |  | $ | (34,705) |  |  | $ | 66,736 |
Weighted average common shares outstanding - Diluted | 30,604 |  |  | 31,337 |  |  | 30,858 |  |  | 31,302 |
Diluted earnings (loss) per common share | $ | (2.36) |  |  | $ | 0.64 |  |  | $ | (1.54) |  |  | $ | 2.19 |
Diluted adjusted earnings (loss) per common share | $ | (2.27) |  |  | $ | 0.63 |  |  | $ | (1.12) |  |  | $ | 2.13 |

The following table presents the reconciliation of GAAP stockholders’ equity to adjusted stockholders’ equity and book value per common share to adjusted book value per common share, which is a non-GAAP measure (in thousands):

| As of
| September 30, |  | September 30, |  |  |  |  |  | December 31, |  |
| 2022 |  | 2021 |  |  |  |  |  | 2021 |  |
Stockholders' equity | $ | 260,637 |  |  | $ | 494,275 |  |  |  |  |  |  | $ | 429,702 |  |  |
less: Preferred equity | 100 |  |  | 100 |  |  |  |  |  |  | 100 |  |  |
Common stockholders' equity | 260,537 |  |  | 494,175 |  |  |  |  |  |  | 429,602 |  |  |
less: Accumulated other comprehensive income (loss) | (115,665) |  |  | (7,398) |  |  |  |  |  |  | (15,568) |  |  |
Adjusted common stockholders' equity | $ | 376,202 |  |  | $ | 501,573 |  |  |  |  |  |  | $ | 445,170 |  |  |
Common shares outstanding | 30,513 |  |  | 31,167 |  |  |  |  |  |  | 31,221 |  |  |
Book value per common share | $ | 8.54 |  |  | $ | 15.86 |  |  |  |  |  |  | $ | 13.76 |  |  |
Adjusted book value per common share | $ | 12.33 |  |  | $ | 16.09 |  |  |  |  |  |  | $ | 14.26 |  |  |

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The following table presents the reconciliation of GAAP ROCE to adjusted ROCE, which is a non-GAAP measure (in thousands):

| Three Months Ended September 30, |  | Nine Months Ended September 30, |  | Year Ended December 31,
| 2022 |  | 2021 |  | 2022 |  | 2021 |  | 2021
Actual or annualized net income (loss) available to common stockholders | $ | (289,112) |  |  | $ | 80,720 |  |  | $ | (63,168) |  |  | $ | 91,365 |  |  | $ | 20,397 |
Average common stockholders' equity | 313,494 |  |  | 487,459 |  |  | 345,070 |  |  | 471,669 |  |  | 439,382 |
ROCE | NM |  | 16.6 | % |  | (18.3) | % |  | 19.4 | % |  | 4.6 | %
Actual or annualized adjusted net income (loss) available to common stockholders | $ | (277,476) |  |  | $ | 79,004 |  |  | $ | (46,273) |  |  | $ | 88,981 |  |  | $ | 18,959 |
Actual or adjusted average common stockholders' equity* | 416,848 |  |  | 493,729 |  |  | 417,022 |  |  | 472,802 |  |  | 444,775 |
Adjusted ROCE | NM |  | 16.0 | % |  | (11.1) | % |  | 18.8 | % |  | 4.3 | %

NM | – Not Meaningful, as it implies full first event hurricane retentions in the first two quarters of the year, which in
| actuality were hurricane free, and it similarly implies a full first event retention in the fourth quarter of the year, which
| would instead be subject to a smaller subsequent event retention on a consolidated basis.
* | Adjusted average common stockholders’ equity excludes current period net realized gains (losses) on investments and
| net changes in unrealized gains (losses) of equity securities, net of tax.

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Item 3. Quantitative and Qualitative Disclosures about Market Risk
Market risk is the potential for economic losses due to adverse changes in fair market value of available-for-sale debt securities, equity securities (“Financial Instruments”) and investment real estate. We carry all of our Financial Instruments at fair market value and investment real estate at net book value in our statement of financial condition. Our investment portfolio as of September 30, 2022 is comprised of available-for-sale debt securities and equity securities, carried at fair market value, which expose us to changing market conditions, specifically interest rates and equity price changes.
The primary objectives of the investment portfolio are the preservation of capital and providing adequate liquidity for potential claim payments and other cash needs. The portfolio’s secondary investment objective is to provide a total rate of return with an emphasis on investment income. None of our investments in risk-sensitive Financial Instruments were entered into for trading purposes.
See “Item 1—Note 3 (Investments)” for more information about our Financial Instruments.
Interest Rate Risk
Interest rate risk is the sensitivity of the fair market value of a fixed rate Financial Instrument to changes in interest rates. Generally, when interest rates rise, the fair value of our fixed rate Financial Instruments declines.
The following tables provide information about our fixed income Financial Instruments as of September 30, 2022 compared to December 31, 2021, which are sensitive to changes in interest rates. The tables present the expected cash flows of Financial Instruments based on years to effective maturity using amortized cost compared to fair market value and the related book yield compared to coupon yield (dollars in thousands):

| September 30, 2022
| 2022 |  | 2023 |  | 2024 |  | 2025 |  | 2026 |  | Thereafter |  | Other |  | Total
Amortized cost | $ | 67,525 |  |  | $ | 110,661 |  |  | $ | 121,910 |  |  | $ | 152,779 |  |  | $ | 171,765 |  |  | $ | 523,340 |  |  | $ | 2,544 |  |  | $ | 1,150,524 |
Fair market value | $ | 65,865 |  |  | $ | 105,291 |  |  | $ | 110,735 |  |  | $ | 135,232 |  |  | $ | 148,457 |  |  | $ | 429,149 |  |  | $ | 2,054 |  |  | $ | 996,783 |
Coupon rate | 1.37 | % |  | 2.35 | % |  | 2.64 | % |  | 2.45 | % |  | 2.58 | % |  | 2.85 | % |  | 4.37 | % |  | 2.58 | %
Book yield | 0.83 | % |  | 1.19 | % |  | 1.40 | % |  | 1.58 | % |  | 1.70 | % |  | 2.18 | % |  | 4.24 | % |  | 1.78 | %
* Years to effective maturity - 5.3 years |  |  |  |  |  |  |  |  |  |  |  |

| December 31, 2021
| 2022 |  | 2023 |  | 2024 |  | 2025 |  | 2026 |  | Thereafter |  | Other |  | Total
Amortized cost | $ | 30,183 |  |  | $ | 97,826 |  |  | $ | 99,528 |  |  | $ | 152,982 |  |  | $ | 180,558 |  |  | $ | 499,417 |  |  | $ | 698 |  |  | $ | 1,061,192 |
Fair market value | $ | 30,163 |  |  | $ | 97,433 |  |  | $ | 98,751 |  |  | $ | 150,046 |  |  | $ | 176,711 |  |  | $ | 486,657 |  |  | $ | 694 |  |  | $ | 1,040,455 |
Coupon rate | 1.34 | % |  | 1.82 | % |  | 2.23 | % |  | 2.62 | % |  | 2.65 | % |  | 2.59 | % |  | 3.53 | % |  | 2.46 | %
Book yield | 0.50 | % |  | 0.71 | % |  | 0.87 | % |  | 1.10 | % |  | 1.28 | % |  | 1.70 | % |  | 3.54 | % |  | 1.34 | %
* Years to effective maturity - 5.4 years |  |  |  |  |  |  |  |  |  |  |  |

All securities, except those with perpetual maturities, were categorized in the tables above utilizing years to effective maturity. Effective maturity takes into consideration all forms of potential prepayment, such as call features or prepayment schedules, that shorten the lifespan of contractual maturity dates.
Equity Price Risk
Equity price risk is the potential for loss in fair value of Financial Instruments in common stock and mutual funds and other from adverse changes in the prices of those Financial Instruments.
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The following table provides information about the Financial Instruments in our investment portfolio subject to price risk as of the dates presented (in thousands):

| September 30, 2022 |  | December 31, 2021
| Fair Value |  | Percent |  | Fair Value |  | Percent
Equity Securities: |  |  |  |  |  |  |
Common stock | $ | 19,746 |  |  | 24.0 | % |  | $ | 3,683 |  |  | 7.8 | %
Mutual funds and other | 62,641 |  |  | 76.0 | % |  | 43,651 |  |  | 92.2 | %
Total equity securities | $ | 82,387 |  |  | 100.0 | % |  | $ | 47,334 |  |  | 100.0 | %

A hypothetical decrease of 20% in the market prices of each of the equity securities held at September 30, 2022 and December 31, 2021 would have resulted in a decrease of $16.5 million and $9.5 million, respectively, in the fair value of those securities.
The COVID-19 pandemic has created uncertainty in the financial markets. See further discussion above under “Item 2— Management’s Discussion and Analysis of Financial Condition and Results of Operations—Overview—Trends—Impact of the COVID-19 Pandemic” regarding the financial impact to us subsequent to March 2020 and our plans to continue monitoring the economic consequences of the COVID-19 pandemic.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
The Company carried out an evaluation under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures pursuant to Rule 13a-15 under the Exchange Act as of the end of the period covered by this report. Based on that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that disclosure controls and procedures were effective as of September 30, 2022, to ensure that information required to be disclosed by the Company in its reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the United States Securities and Exchange Commission’s (“SEC”) rules and forms and that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the Company’s management, including its principal executive and principal financial officers as appropriate, to allow timely decisions regarding required disclosure.
Changes in Internal Control Over Financial Reporting
There was no change in the Company’s internal controls over financial reporting that occurred during the period covered by this report that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
PART II — OTHER INFORMATION
Item 1. Legal Proceedings
Lawsuits and other legal proceedings are filed against the Company from time to time. Many of these legal proceedings involve claims under policies that we underwrite and reserve for as an insurer. We are also involved in various other legal proceedings and litigation unrelated to claims under our policies that arise in the ordinary course of business operations. Management believes that any liabilities that may arise as a result of these legal matters will not have a material adverse effect on our financial condition or results of operations. The Company contests liability and/or the amount of damages as appropriate in each pending matter.
In accordance with applicable accounting guidance, the Company establishes an accrued liability for legal matters when those matters present loss contingencies that are both probable and estimable.
Legal proceedings are subject to many uncertain factors that generally cannot be predicted with certainty, and the Company may be exposed to losses in excess of any amounts accrued. The Company currently estimates that the reasonably possible losses for legal proceedings, whether in excess of a related accrued liability or where there is no accrued liability, and for which the Company is able to estimate a possible loss, are immaterial. This represents management’s estimate of possible loss with respect to these matters and is based on currently available information. These estimates of possible loss do not represent our maximum loss exposure, and actual results may vary significantly from current estimates.
Item 1A. Risk Factors
Please refer to the risk factors previously disclosed in “Part I, Item 1A—Risk Factors,” included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
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The table below presents purchases of our common stock during the three months ended September 30, 2022:

|  |  |  |  |  | Total Number of |  | Maximum Number
|  |  |  |  |  | Shares Purchased |  | of Shares That
|  |  |  |  |  | As Part of |  | May Yet be
|  |  |  |  |  | Publicly |  | Purchased Under
|  | Total Number of |  | Average Price |  | Announced |  | the Plans or
|  | Shares Purchased |  | Paid per Share (1) |  | Plans or Programs |  | Programs (2)
7/1/2022 - 7/31/2022 |  | — |  |  | $ | — |  |  | — |  |  | — |
8/1/2022 - 8/31/2022 |  | 111,410 |  |  | $ | 12.16 |  |  | 111,410 |  |  | — |
9/1/2022 - 9/30/2022 |  | 91,834 |  |  | $ | 11.53 |  |  | 91,834 |  |  | 814,835 |
Total |  | 203,244 |  |  | $ | 11.87 |  |  | 203,244 |  |  | 814,835 |

(1)Average price paid per share does not reflect brokerage commissions paid to acquire shares in open market transactions.
(2)Number of shares was calculated based on a closing price at September 30, 2022 of $9.85 per share.
We may repurchase shares from time to time at our discretion, based on ongoing assessments of our capital needs, the market price of our common stock and general market conditions. We will fund the share repurchase program with cash from operations.
On November 3, 2020, we announced that our Board of Directors authorized the repurchase of up to $20 million of outstanding shares of our common stock through November 3, 2022 (the “November 2022 Share Repurchase Program”). Under the November 2022 Share Repurchase Program, we repurchased 968,915 shares of our common stock from November 2020 through September 30, 2022 at an aggregate cost of approximately $12.0 million. As of September 30, 2022, we have the ability to purchase up to approximately $8.0 million of our common stock under the November 2022 Share Repurchase Program.
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Item 6. Exhibits

Exhibit No. |  | Exhibit
3.1 |  | Amended and Restated Certificate of Incorporation, as amended (filed as Exhibit 3.1 to the Company’s Annual Report on Form 10‑K filed on February 24, 2017 and incorporated herein by reference)
3.2 |  | Amended and Restated Bylaws of Universal Insurance Holdings, Inc. (filed as Exhibit 3.2 to the Company’s Current Report on Form 8-K filed on June 19, 2017 and incorporated herein by reference)
10.1† |  | Amendment No. 1 Credit Agreement, dated August 30, 2022, by and between the Company and JPMorgan Chase Bank, N.A.
10.2† |  | Credit Agreement, dated October 31, 2022, by and between the Company and JPMorgan Chase Bank, N.A.
15.1 |  | Accountants’ Acknowledgment
31.1 |  | Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2 |  | Certification of Principal Accounting Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32 |  | Certifications of Chief Executive Officer and Principal Accounting Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.1 |  | The following materials from Universal Insurance Holdings, Inc. Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 2022, formatted in iXBRL (Inline eXtensible Business Reporting Language): (i) the Condensed Consolidated Balance Sheets, (ii) the Condensed Consolidated Statements of Income, (iii) the Condensed Consolidated Statements of Comprehensive Income, (iv) the Condensed Statement of Stockholders’ Equity, (v) the Condensed Consolidated Statements of Cash Flows and (vi) Notes to Condensed Consolidated Financial Statements.
104 |  | The cover page from the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2022, formatted in Inline XBRL (included in Exhibit 101)
† Filed herewith.

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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

|  | UNIVERSAL INSURANCE HOLDINGS, INC.
Date: November 2, 2022 |  | /s/ Stephen J. Donaghy
|  | Stephen J. Donaghy, Chief Executive Officer and Principal Executive Officer
Date: November 2, 2022 |  | /s/ Gary Lloyd Ropiecki
|  | Gary Lloyd Ropiecki, Principal Accounting Officer

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